Current Economic Statistics and Review For the Week Ended September 15

The relationship between investment (capital formation) and economic growth (output) is known to be very crucial; it not only augments the productive capacity but also contributes to widening of effective demand in the economy and in a capital-deficient developing country like ours, this relationship assumes special importance. Studies have typically shown that capital accumulation contributes up to 60 to 70 per cent of the growth in per capita output and continues to be the primary engine of growth. A slowdown in the rate of investment leads to a decline in the pace of growth as witnessed in the Indian context when a deceleration in the growth rate during the second half of 1990s was associated with a fall in the rate of investment (RBI 2001)

The rate of investment in India has stagnated between 23-24 per cent (of GDP) during the decade of the 1990s and also in the beginning of the new decade (till 2003-04), with public and private sectors witnessing declines in their investment rate. The first half of the 1990s saw acceleration in the investment rate (particularly in manufacturing) of the private corporate sector following the initial response to policy reforms. However, the high tempo of public investment of the 1980’s could not be sustained in the 1990’s due to a number of factors: fiscal constraints and deceleration in public savings; and policy stance of shifting investment responsibilities in favour of private sector. As a result, private sector investment which is crowded in by public investment, has suffered a setback (Table 1).

This declining trend in public and private corporate sector investments has continued till 2003-04 (the year till actual data is available). For the subsequent period, there are no firm data on saving and investment. The mid-term appraisal of the tenth Five Year Plan (2002-03 to 2006-07) has emphasised that “ increasingly future growth prospects will now depend on sustained growth of private investment and also public investment in critical infrastructure” (p 34).However, at present there seem to be signs of revival in the investment. This sentiment is echoed in RBI’s mid-term review of credit policy as well. “Domestic production and imports of capital goods have risen strongly in tandem, indicative of ongoing capacity expansion. With continued business expansion and lower interest costs, corporate profitability is high and there is an expansion in internal resources available for investment. These factors have found reflection in upbeat sentiments and a brightened investment climate” (statement by Dr Y.V Reddy, Governor of the Reserve Bank). This better outlook for investment is supported by indicators suggesting signs of improved investment and these indicators are discussed below in brief.

Table 1: Gross Capital Formation by Type of Institution at Current Prices
(Rupees Crore)
	Public		Private		Household		Aggregate		Adjusted
	Sector		Corporate		Sector				for errors &
			Sector						omissions
1990-91	53099	9.3	23498	4.1	60257	10.6	136854	24.1	195650	25.4
1991-92	57633	8.8	36992	5.7	48635	7.4	143260	21.9	171553	22.0
1992-93	63997	8.6	48316	6.5	65706	8.8	178019	23.8	187478	22.9
1993-94	70834	8.2	48213		63572	7.4	182619	21.3	198412	23.1
1994-95	88206	8.7	69953	6.9	78625	7.8	236784	23.4	243882	26.4
1995-96	90977	7.7	113781	9.6	110421	9.3	315179	26.5	271015	27.3
1996-97	96187	7.0	110084	8.0	91591	6.7	297862	21.8	268435	25.1
1997-98	100653	6.6	121399	8.0	121660	8.0	343712	22.6	289058	25.9
1998-99	114545	6.6	111208	6.4	146456	8.4	372209	21.4	290971	24.6
1999-00	134484	6.9	125120	6.5	198658	10.3	458262	23.7	351624	27.8
2000-01	131505	6.3	105709	5.1	235494	11.3	472708	22.6	353995	26.9
2001-02	133003	5.8	111321	4.9	264736	11.6	509060	22.3	346907	25.1
2002-03	140386	5.7	118579	4.8	304851	12.3	563816	22.8	373399	25.8
2003-04	154086	5.6	124177	4.5	357431	13.0	635694	23.0	544520
Figures in Italics are percentage to GDP at current market prices
Source: National Accounts Statistics

One important indicator in this respect has been the CMIE’s quarterly survey of investment projects. As per the latest 43^rd quarterly survey in this series. The total investment, consisting of announcement, proposed and under implementation together, has shown an impressive rise of 88 per cent over the year October 2005-October 2004 or of 54 per cent growth during April- October 2005 (Table 2). However, a caveat found in these data is that a large number of projects, 1070 with project cost of Rs 79,638 crore got deleted from the live list of projects due to cancellation and completions as compared with a lower number of 292 with project cost of Rs 21,583 crore a year ago. More importantly, projects under implementation have grown by 13.2 per cent from Rs 750,791 crore to Rs 849.710 crore between October 2004 and October 2005.

Table 2: All-Industry- Summary
		Oct-05		Jul-05		Apr-05		Jan-05		Oct-04
Projects		Number	Rs.crore	Number	Rs.crore	Number	Rs.crore	Number	Rs.crore	Number	Rs.crore
	At the beginning of the quarter	10307	2222701	10085	1994995	9757	1882357	9513	1761705	9445	1599532
	New	564	211054	450	210221	527	115685	437	80977	328	129511
	Transferred from	4	53070	3	2567	11	31613	9	5849	8	2927
	Revived	27	4604	32	7460	38	16721	33	5790	24	8738
Total Live		10902	2491429	10570	2E+06	10333	2E+06	9992	1854320	9805	1740708
	Completed	66	11098	135	15623	133	20119	102	15734	72	7529
	Abandoned/Shelved	1	350	2	155	3	7424	1	179	0	0
	No information available	999	15121	123	17380	98	8549	122	8906	214	12322
	Transferred to	4	53070	3	2567	12	31499	10	5273	6	1733
Total Deletion		1070	79638	263	35725	246	67591	235	30093	292	21583
	Variation in cost		44396		43183		16210		58129		42580
At the end of the quarter		9833	2456187	10307	2E+06	10085	2E+06	9757	1882357	9513	1761705
	Announcement	4957	941178	5478	819732	5251	647601	5047	620631	4936	575217
	Proposed	2106	665299	2100	569351	2057	534792	1962	465426	1905	435697
	Under Implementation	2770	849710	2729	833618	2777	812601	2748	796300	2672	750791
Source: CMIE, Capex November,2005

Industry-wise, manufacturing sector has witnessed the maximum rise in investment and its share in total investment has also risen to almost 31 per cent in October 2005 when compared to about 20 per cent. Table 3 thus suggests a steady rise in investment in the manufacturing sector since April 2004. Its share in total investment (industry-wise) has risen noteworthily from 23 per cent in October 2004 to around 31 per cent in October 2005. However, if one observes carefully, it is revealed that this rise is not widespread but selective and sectoral, concentrated in few segments in the manufacturing sector. A bulk of investment is in metal and metal products and particularly in the steel sector. In fact, CMIEs 43^rd Quarterly Survey of Investment Projects states that new projects announced are concentrated in steel sector. Thus, though investment is showing a rising trend it is essentially restricted to the ferrous metals group.

Such concentration is also evident from state-wise distribution of investment projects. As is evident from Table 4, almost 50 per cent of the total investment is concentrated in five states, with Orissa emerging as a major destination. Investment in Orissa has risen more than two fold in a span of just one year (July 2004 over July 2005) and its share in total investment has risen from just 4.4 per cent to 11.4 during the same period. Orissa government has signed a Memorandum of Understanding (MoU) with various steel companies to establish new plants in the state. The companies that have been eager in setting up plants in Orissa are mostly steel companies such as, Magnitogorsk Iron and Steel Works (MMK), TISCO, Essar Steel, Bhushand Steel and Strips, JSW Steel, etc. The companies are showing great interest in setting up plants in states like Orissa and Jharkhand because of availability of unexploited coal mines and iron ore.

Table 3: Trends in Total Investment by Industry

(Rs.crore)

Oct-05

Jul-05

Apr-05

jan-05

Oct-04

Jul-04

Manufaturing

772697

31.46

659648

29.68

500319

25.08

453057

24.07

409135

23.22

319493

19.97

Chemicals

253696

10.33

233558

10.51

191184

9.58

188731

10.03

177492

10.08

166489

10.41

Non-metallic Mineral Products

17353

0.71

16474

0.74

16659

0.84

16056

0.85

13974

0.79

12935

0.81

Metals and Metal Products

414997

16.90

327298

14.73

219658

11.01

181156

9.62

160232

9.10

87438

5.47

of which:

Ferrous Metals

365374

14.88

277679

12.49

179058

8.98

154109

8.19

132822

7.54

62446

3.90

Non-ferrous Metals

49623

2.02

49619

2.23

40599

2.04

27046

1.44

27410

1.56

24992

1.56

Machinery

23882

0.97

23110

1.04

22454

1.13

22033

1.17

17226

0.98

15924

1.00

Mining

97583

3.97

86214

3.88

82184

4.12

74892

3.98

73343

4.16

67996

4.25

Electricity

667767

27.19

614621

27.65

570986

28.62

563697

29.95

535162

30.38

482408

30.16

of which:

Generation

642930

26.18

5900000

26.50

546580

27.40

542181

28.80

515911

29.28

465808

29.12

Services

647191

26.35

605557

27.24

586570

29.40

562180

29.87

529502

30.06

511727

31.99

Transport Services

361937

14.74

325950

14.66

321692

16.12

299042

15.89

273425

15.52

269173

16.83

Miscellaneous Services

135768

5.53

134536

6.05

124486

6.24

126397

6.71

123643

7.02

112292

7.02

Irrigation

134789

5.49

129249

5.81

128378

6.44

128262

6.81

117775

6.69

121233

7.58

Construction

136160

5.54

127412

5.73

126557

6.34

100269

5.33

96789

5.49

96675

6.04

All Industries

2456186

100.00

2222701

100.00

1994995

100.00

1882357

100.00

1761705

100.00

1599532

100.00

Note: Figures in brackets are percentages to all industries

Source: CMIE, Capex November,2005

Table 4: Trends in total investments by states
(Rs Crore)
States	July-05	April-05	Jan-05	Oct-04	July-04	April-04
Andhra Pradesh	193362	171924	155683	130160	131712	126620
	8.7	7.7	7.0	5.9	5.9	5.7
Gujarat	196451	159403	161657	154235	146030	141062
	8.8	7.2	7.3	6.9	6.6	6.3
Karnataka	176276	143823	156900	145835	113345	115374
	7.9	6.5	7.1	6.6	5.1	5.2
Maharashtra	202397	194970	177278	172447	168815	165421
	9.1	8.8	8.0	7.8	7.6	7.4
Orissa	253341	207258	187959	177569	97003	74269
	11.4	9.3	8.5	8.0	4.4	3.3
Tamil Nadu	161368	158974	140039	136664	136527	132723
	7.3	7.1	6.3	6.1	6.1	6.0
All India	2223913	1995718	1882863	1762217	1599794	1543026
	100.0	100.0	100.0	100.0	100.0	100.0
Note : Figures in Italic are percentage to all India
Source : CMIE- Capex October 2005

Thus, while there is evidence of an improvement in industrial projects under implementation, particularly in the manufacturing sector, the improvement is not widespread; it is rather concentrated in the steel sector and in only few states.

The second indicator arises from the RBI’s study on corporate investment growth based on project assistance sanctioned by financial institutions and banks. This study shows a buoyant rise in the corporate sector’s capital expenditure from Rs 69,160 crore in 2004-05, a rise of 40.6 per cent, from Rs 49,157 crore in 2003-04 which had shown a rise of 17.7 per cent over that in 2002-03. For 2005-06, further details are not available but the RBI study does state that the prospects are bright for sustaining the investment momentum during that year from.

What is however, disappointing that the projects, for which financial assistance was sanctioned in 2003-04 and 2004-05 and the project costs of which have shown sizeable increases, are again as in the case of CMIE data concentrated in a few industries in 2002-03, of the total project cost, 39.3 per cent was in telecommunication and 13.2 per cent was in power. Amongst the major manufacturing industries, 17.1 per cent was in metal and metal products; the next highest was in textiles at 5.0 per cent. Likewise, in 2004-05, 16.3 per cent was in telecom and 14.1 per cent in power, thus absorbing over 30 per cent in two major infrastructure areas. In the manufacturing sector again, metals and metal products accounted for 28.1 per cent of the total project cost in 2004-05 and textiles 7.7 per cent (Table 5).

Table 5: Industry-wise Distribution of Projects and their Cost in 2003-04 and 2004-05
				2003-04			2004-05
		Industry	Number of Projects	Project cost Amount (Rs Crore)	Per cent share	Number of Projects	Project cost Amount (Rs Crore)	Per cent share
1.	Infrastructure (i + ii + iii)		57	41,210	56.5	76	32,586	33.5
	i)	Power	35	9,615	13.2	61	13,711	14.1
	ii)	Telecom	4	28,688	39.3	4	15,832	16.3
	iii)	Storage & Ports	18	2,907	4.0	11	3,043	3.1
2.	Engineering (i + ii + iii + iv)		134	14,257	19.5	189	29,299	30.1
	i)	Metals & Metal Products	104	12,463	17.1	141	27,331	28.1
	ii)	Automobile & Auto-ancillaries	15	936	1.3	25	1,298	1.3
	iii)	Electrical equipments	8	655	0.9	7	263	0.3
	iv)	Non-electrical machinery	7	204	0.3	16	408	0.4
3.	Chemicals ( i + ii )		39	1,506	2.1	38	2,822	2.9
	i)	Petrochemicals & chemicals	23	1,124	1.5	16	1,814	1.9
	ii)	Pharmaceuticals & drugs	16	382	0.5	22	1,008	1.0
4.	Cement		10	1,664	2.3	14	3,642	3.7
5.	Ceramics		14	328	0.4	10	1,161	1.2
6.	Minerals		9	123	0.2	20	2,235	2.3
7.	Textiles (other than Jute)		103	3,676	5.0	126	7,458	7.7
8.	Paper & paper Products		15	584	0.8	17	2,330	2.4
9.	Hotels and restaurants		21	1,434	2.0	20	2,254	2.3
10.	Services (Transport, Hospitals
	and Entertainment)		38	2,251	3.1	45	4,201	4.3
11.	Food Products/Processing		32	558	0.8	47	1,745	1.8
12.	Information Technology		17	1,633	2.2	16	979	1.0
13.	Others*		102	3,716	5.1	104	6,557	6.7
		Total	591	72,940	100.0	722	97,270	100.0
Source : Reserve Bank of India , August 2005 Bulletin

While the above set of indicators presents direct evidence of possible investments actually taking place, the prospects for investment may also be looked at from the financing angles. There are two key sources of funds in this respect: capital raised from the market and non-food bank credit (which has a term credit component) Companies planning to expand or set up new ventures come to the market to raise funds. At present, the Indian stock markets are booming and have entered a phase where they can mobilise huge amounts of funds. After various scams, namely, Harshad Mehta and Ketan Parekh scam, SEBI has tightened the rules and regulations for operating in the market and this has helped develop faith in the market and over the years there has been a rise in the amount raised.

Table 6 suggests that in 2002-03, the amount mobilised was less possibly due to the fact that it was the year of recovery (from mid 2002 the economy had started recovering) from the recessionary conditions faced by the economy lasting from 1998-99 to 2000-01. However, the next two years have witnessed a rise in amounts mobilised. Now, for April-September 2005, the resource mobilisation has shown a decline, despite a rise in the number of issues as compared to April-September 2004, despite a buoyant stock market. The possible reason could be prominence of banks and financial institutions in raising funds, which raise small amounts. This in turn is indicative of the fact that not many companies are coming to the market and taking advantage of this boom.

A more noteworthy indicator has been the phenomenal expansion in non-food bank credit. On a year-on-year basis, non-food credit growth at 33.6 per cent as on October 28 on a comparable basis has been on top of a growth of 28.2 per cent a year ago. However, in recent years non-food credit has witnessed a structural shift towards the non-agriculture non-industrial sector. According to RBI’s mid-term review of credit policy “ Credit to industry increased by 21 per cent whereas credit off-take by non-agriculture and non-industrial sector increased by over 35 per cent each (during April-August 2005). The growth in credit to non-agricultural non-industrial sector is led by housing, real estate and personal loans. With in the industrial sector, significant increase in credit off-take has been recorded by petroleum, coal products, power, roads and ports, cotton textiles, drugs and pharmaceuticals, gems and jewellery, iron and steel, other metal and metal products, automobiles and engineering”.

Finally, though FDI flows have risen on a yearly basis Table 5 shows that between Jan to July 2005 it has actually fallen as compared to the corresponding period previous year. Even external commercial borrowings have risen on an annual basis (however from a negative value implying net outflow or repayment) but they have fallen over the quarter: April-June 2005.

Another indicator is Index of capital goods which has shown a rise but on a low base. The year before 2002-03 was marked by recession the world economy as well as Indian economy. Because of the recessionary condition investment and manufacturing activities had declined and manufacturing activity has been reflected in low growth of capital goods industry in 2001-02. From middle of 2002 the world economy has started looking up.

Table 7 : Year-wise and Route-Wise: Actual Inflows of Foreign Direct Investment (FDI/NRI)
(Amount rupees in million)
Year	Governments			RBI's automatic		Amount of		RBI's various			Total	Closing balance	Grand Total
(Jan-Dec)	approval			approval (under		inflows on		NRI's schemes				of advance
	(FIPB, SIA route)			delegated power)		acquisition of
						shares
2005 (Jan-July)	41436			29658		23721		-			94814	-	94814
2004(Jan-July)	23741			27126		24092		-			74958	20074	95034
2004	48517			54221		45076		-			147814	24852	172658
2003	42956			23400		29284		-			95640	18808	116172
2002	69580			39030		52623		111			161344	19771	181956

Total as on 31.07.05	738437			236096		273686		84270			1332488	98690	1433743
Total as on 31.07.04	669496			179282		228984		83586			1161348	93913	1257826

For details and footnotes see SIA Newsletter
Source: SIA Newsletter, Various issues

Table 8: Index of production of capital goods
		Capital goods (index)	Capital goods (per cent)		Machinery and euqipments (index)		Machinery and euqipments (per cent)		Transport equipment (index)	Transport equipment (per cent)
April-September
2005-06		238.1	13.9		287.1		9.2		299	12.1
2004-05		209	13.8		262.9		7.2		266.8	16.1

April-March
2004-05		229.6	14.0		279.4		19.8		283.7	4.1
2003-04		201.5	13.6		233.3		15.8		272.6	17.1
2002-03		177.4	10.5		201.4		1.6		232.9	14.6
2001-02		160.6	3.4		198.3		1.3		203.3	6.8
Source : CMIE- Capex October 2005, 2004

Even though investment activity seems to be picking up but it seems that this revival is sectoral and not wide-spread. There are constraints in terms of infrastructure bottlenecks and share of infrastructure industries namely mining and electricity in total investment (industry-wise) has come down. RBI’s in its study (RBI Bulletin, August 2005) has indicated encouraging prospects for corporate sector investment “…., the year 2005-06 may witness an increase in corporate investment when compared to that in 2004-05”. However, declining corporate sector profits (for quarter ending September 2005) have cast doubts over this optimism. Though there has been a rise in non-food credit but again shares of housing and retail sectors are high. Various business expectation surveys including the RBIs business outlook survey, have presented an optimistic picture of investment climate however, this optimism may be short lived.

Planning Commission (2005): Mid-Term Appraisal of 10^th Five-Year Plan (2002-07)

National Agricultural Co-operative marketing Federation of India (Nafed) has planned to set up biofertiliser plants in Nepal and Mauritius , at an estimated cost of Rs 1 crore per unit with an annual production capacity of 150 metric tonnes. The project is expected to take off in three years. Nafed is exploring a joint venture route for biofertiliser plants.

Andhra Pradesh government has decided to provide free power to those farmers, who will take up crop diversification. Government wants the farmers to take up cultivation of horticulture products or wetland crops like oilseeds, grains, maize etc. instead of paddy on the wetlands, since the former use less groundwater than paddy. Another reason is that, it would be difficult for the government to provide Minimum Support Price for paddy for kharif and rabi, both the seasons rather than paying for the cost of power or loss of water.

The government has decided not to import wheat at least till December 2005, since the country has sufficient stocks of wheat and rice. In addition to this, their prices are also under control and government has managed the distribution system by replacing wheat with rice for southern and eastern states where people consume more rice.

The Agriculture Ministry has decided provide electronic connectivity to important wholesale markets through out the country to ultimately put in place a national atlas of agriculture markets on the electronic based GIS platform. The atlas will contain the information on the entire agricultural marketing infrastructure including warehouses, cold storages, markets and other related infrastructure. Besides, the commodity profiles indicating the post harvest requirements for each of them would also be available on the national agriculture market atlas.

Index of Industrial Production

The industrial sector has grown at a robust 8.8 per cent in the first half of 2005-06 against the 8.3 per cent growth registered during the same half of the previous year. This is mainly on the back of strong manufacturing sector growth at 9.9 per cent during April-September 2005 as compared to the 8.8 per cent during the corresponding period of 2004. However, there was a decline in mining activities and electricity generation from 5.1 per cent and 7.8 per cent respectively during April-September 2004 to 1.3 per cent and 4.8 per cent respectively in the same period of the current fiscal.

Automobiles

A common testing and training facility for small and medium auto-components manufacturing units is being developed by Maharashtra Chamber for Commerce, Industries and Agriculture (MCCIA) and the Pimpri-Chinchwad Municipal Corporation (PCMC). It is expected to begin operations by mid-November 2005. The commerce ministry is to fund 75 per cent of the total cost of the projects, estimated to be Rs 67 crore.

Pharmaceuticals

A new drug pricing policy, being currently mooted, is set to recommend fiscal incentives including excise waivers to generic or unbranded drugs and remove them from the ambit of price control.

INFRASTRUCTURE

The power ministry plans to float global tenders inviting the private sector to put in competitive bids for setting up four ultra mega projects of 5000 megawatt (MW) capacity each, which could in the future be expanded to 8000-10000 MW. They are to be hydro projects and pit-head coal and imported coal-based thermal power projects, entailing an investment of about Rs 80000 crore.

Petroleum, Petroleum Products and Natural Gas

The government is likely to, shortly, issue Rs 15794 crore worth of bonds to oil marketing companies for partly offsetting their under-recoveries on sale of petroleum products in the domestic markets. However, the finance ministry has ruled out any reimbursement to the oil public sector units (ONGC, GAIL, OIL) of the subsidy burden being borne by them since it feels that under the present sharing mechanism the investible surplus of these companies is not reduce considerably as they are in a financially sound position.

A memorandum of agreement for the use of a new technology for transportation of natural gas has been signed between state-owned GAIL India with Antwerp-based Exmar Marine for its on-board LNG re-gasification technology for import of liquefied natural gas (LNG).

Mining

The centre has called upon all mineral-bearing states to launch an immediate crack-down on illegal mining activities and deal firmly with offenders, following a series of disastrous accidents that led to many deaths of people engaged in illegal mining.

Ports

The centre has approved the plan of Jawaharlal Nehru Port Trust (JNPT) to extend its existing container freight station (CFS) facilities over 300 hectares of land to facilitate handling of increasing traffic

INFLATION

The annual point-to-point inflation rate based on wholesale price index has gone up to 4.75 per cent during the week ended October 29, 2005 from 4.49 per cent registered during the previous week. The inflation rate was at 6.95 per cent in the corresponding week last year.

The WPI in the week under review has risen to 198.3 from the previous week’s level of 197.7 (Base: 1993-94=100). The index of primary articles’ group has risen considerably by 1.3 per cent to 199.3 from the previous week’s level of 196.7, mainly due to an increase in the price indices of food articles by 1.8 per cent to 201.5 from 197.9 in the previous week. The higher prices of food articles are attributed to the increase in the prices of pork, fruits and vegetables and urad, gram and bajra. The index of ‘fuel, power, light and lubricants’ group has declined by 0.7 per cent to 312.4 from the previous week’s level of 314.7. The index of manufactured products’ group constituting the maximum of 63.7 per cent of total weight, has risen by 0.3 per cent to 172.5 from 172 of the previous week’s level, primarily due to increase in the prices of food products, ‘chemical and chemical products, base metals and ‘machinery and machine tools’.

The latest final index of WPI for the week ended September 3, 2005 has been revised upwards; as a result both, the absolute index and the implied inflation rate moved up to 196.6 and 3.64 per cent instead of the provisional levels of 195.7 and 3.16 per cent, respectively.

Overall, the rate of inflation has now gradually started firming up due to the reducing impact of high base effect coupled with rising prices of food articles and minerals under the group ‘Primary articles’ in the last couple of weeks. The hike in the prices of petroleum products by the government, which has been effective from September 6th, and its consequent spiralling effects on the related sectors like transport, has also been partly responsible in stimulating inflationary pressures on the economy. However, the Reserve Bank of India has assured in it’s Mid-Term Review 2005-06, that it would keep a close watch on inflationary movements in the near future and if necessary, would use fiscal and monetary measures in order to contain the same.

Federal Bank has called off the proposed merger with Lord Krishna Bank (LKB) on issue of valuation a month after the boards of the two banks agreed in principle for a merger. Federal Bank is learnt to have offered upto Rs.250 crore which was not acceptable to LKB which demanded at least Rs.350 crore, the amount HDFC banks is said to be have offered some time ago. Though LKB had officially presented a net worth of Rs.160 crore, Federal Bank after due diligence had brought it down to around Rs.100 crore, on grounds of under provisioning on many counts, including salaries and allowances. Federal Bank was willing to pay Rs.100 crore in cash and up to another Rs.150 crore through share swap.

The country’s largest bank, the State Bank of India (SBI) in its third acquisition in last four months has acquired a majority stake of 76 per cent in an Indonesian Bank – PT Bank IndoMonex, subject to regulatory approvals and processes. With the proposed acquisition, SBI would increase its presence in the ASEAN region.

The government has allowed foreign direct investments (FDI) up to 49 per cent in asset reconstruction companies (ARCs) that buy stressed assets from banks and financial institutions. The move is aimed at imparting the requisite liquidity in the business of asset reconstruction in the form of FDI by foreign banks. It could also lead to a spurt in the number of ARCs in the country, where the banking sector is saddled with NPAs in excess of Rs.60,000 crore. According to a finance ministry release, the Foreign Investments Promotion Board (FIPB) would now consider proposals to infuse FDI in ARCs registered with RBI. It was, however, clarified that foreign institutional investors FIIs would continue to be barred. The new FDI policy would be reviewed after two years, the release added. Currently, Arcil is the only one ARC operator in India . This comes as a great relief to Acril who has long sought the participation of foreign players in its equity structure as well in the security receipts issued by ARCs.

Advance direct tax collections during April-October 2005 have increased by 28 per cent to Rs 66,000 crore. Fringe benefit tax (FBT) collection till the end of the month, despite challenges to the tax in various high courts, increased to Rs 1,700 crore while securities transaction tax (STT) collection increased to Rs 1,300 crore. Active trading in the stock market in October generated about Rs 300 crore in that month alone.

The corporation tax collection after two instalments of advance tax was up by 26 per cent to Rs 38,000 crore while total of personal income tax was up 30 per cent to Rs 28,000 crore. The three new taxes, Banking Cash Transaction Tax (BCTT), FBT and STT contributed about Rs 3,120 crore to the government exchequer. If this amount is deducted from the personal income tax for the purpose of comparison with last year’s personal tax collection, growth in revenue collection under this tax head would be about 16 per cent.

Direct taxes collected from Mumbai was about Rs 16,000 crore during April-October, about 16 per cent more than during the same period last year. Delhi ’s collection was up 31 per cent to Rs 10,800 crore while Chennai’s was up by 30 per cent to Rs 4,800 crore and Kolkatta 36 per cent up to Rs 3,100 crore. Pune reported a 28 per cent increase in collection to Rs 3,000 crore.

Fringe Benefit Tax (FBT) is facing opposition from several parties. This tax is being challenged before courts in Madras , Mumbai and Andhra Pradesh.

The Central Board of Direct Taxes (CBDT) notified amendments to Income Tax rules to allow recognised provident funds, approved superannuating funds and approved gratuity funds to invest a part of their corpus in equity shares of companies and equity linked schemes of mutual funds.

The public offer issue of Pyramid Retail has been oversubscribed as on November 14 with the section reserved for qualified institutional buyers being oversubscribed by 5.12 times, as per the data put out by NSE, no bids have been tendered by FIIs in this category as they are not allowed to invest in retail sector. In case of non-institutional and retail investors, the issue is yet to be oversubscribed in these categories.

The offer of Bombay Rayon Fashions Ltd to sell 1.34 crore shares of Rs 10 each in the price band of Rs 60-70 per shares is open for subscription during November 11 and 17.

AIA Engineering, a niche player in the value-added high chrome metallurgy segment catering to cement, mining and thermal power industries, is entering the capital market with its initial public offering of 47 lakh equity shares of Rs. 10 each through the book-building process. It has fixed the price band at Rs. 275-315 per share. If fully subscribed the company would raise Rs. 129 crore at the lower-end and Rs. 148 crore at the upper-end of the price band. The issue will remain open from November 17 to 22

Between November 1 and 11, the FIIs have turned net buyers of equities to the extent of Rs 1388 crore with purchase of Rs 8554 crore and sales of Rs 7166 crore. During the same period, mutual funds have been net sellers to the extent of Rs 125 crore with sales of Rs 1827 crore and purchases of Rs 1702 crore

In a bid to encourage more investors to hold securities in the demat form, the SEBI has waived demat charges except the statutory ones with effect from January 9, 2006.

The Union Government is looking at disinvesting a small portion of equity in profit making public sector enterprises other than the `Navratnas,'.

FIIs net investments in the futures instruments till November 09, has been Rs. 1323.70 crore, with purchase worth Rs. 2992.40 crore and sales of Rs. 1668.70 crore. Meanwhile, they have been net sellers to the tune of Rs. 47.27 crore in the options segment till November 09.

RBI , under regular auction has mopped up Rs. 500 and Rs. 1000 crore through 91-day treasury bills and 364-day treasury bills. The cut-off yields for 91-day and 364-day treasury bills were 5.8189 per cent and 5.9823 per cent, respectively.

RBI ,reissued the 7.49 per cent-2017 paper and 7.40 per cent-2035 paper for a notified amount of Rs. 5,000 and Rs. 3,000 crore, respectively. The cut-off yield for 7.49 per cent-2017 paper and 7.40 per cent-2035 paper were 7.3258 per cent and 7.72825 per cent, respectively.

The interest rate on the Floating Rate bond, 2021 has been fixed at 5.96 per cent per annum for the year (November 10, 2005 to November 9,2005)

Andhra Pradesh government has announced the sale of a ten year Andhra Pradesh State Development Loan for a notified amount of Rs. 375 crore through a yield based auction using multiple price auction method on November 17,2005.

Due to the outflows on account of loan floatation’s, the liquidity in the market remained tight as reflected by the fall in average deployments in LAF reverse repo and RBI also had to lend money through repo. As a result of this tightness, the call rates ruled firm in the range of 5.50-7 per cent as against a range of 5.10 –5.75 per cent in the previous week. Despite the tight liquidity conditions and depreciating rupee, the central loan floations were oversubscribed with cut-off yield for the 12-year in line with the market expectations and that on 30-year paper being above market expectation. Thus, the yield curve move upwards.

RBI has modified the external commercial borrowing (ECB) policy to treat special purpose vehicles (SPVs) or any other entity set up to finance infrastructure companies/projects exclusively as financial institutions and ECB by such entities will be considered under the approved route on a case by case basis.

RBI is replacing its five-country indices of NEER and REER with new six-country indices. It is also revising its thirty six-country indices. The new REER and NEER figures will be published in December 2005.

Amidst deteriorating trade deficit and slowing down of FII inflows, the rupee depreciated from Rs 45.41 to Rs 45.99 but recouped some of its losses to reach Rs 45.77 as the international crude oil prices remaining easy during the week.

With a view to facilitate introduction of option trading in commodities as well as to provide greater autonomy to the Forward Market Commission, the government is set to put up a Bill to amend the Forward Contracts (Regulation) Act, 1950. The amended law will provide for setting up of a Forward Market Appellate Tribunal on the lines of the Security Appellate Tribunal (SAT) set up under Sebi Act.

Crisil has assigned a provisional rating of ‘P1+ (SO)’ to Series A1 and Series A2 pass through certificates worth Rs. 500 million and Rs. 1.46 million, respectively, issued by Indian Corporate Loan Securitisation Trust Series-1 under the securitisation programme of Yes Bank Limited.

Crisil has reaffirmed the ‘P1+’ and ‘FAA-/Stabke’ ratings assigned to Rs. 200 million commercial paper programme and fixed deposit programme of Addison and Company Limited. The ratings continue to reflect the company’s strong association with the Amalgamations group and in particular, with Simpson and Company, its holding company. The ratings are further supported by the company’s sustained market leadership in the high-speed steel cutting tools industry.

Crisil has reaffirmed the ‘AA-/Stable’, ‘FAA/Stable’ and ‘P1+’ ratings assigned to India Glycols Limited’s Rs. 100 million NCD issue, fixed deposit programme and Rs. 500 million commercial paper programme, respectively. The reaffirmation takes into account the company’s leadership in the specialty ethylene oxide derivative markets and vertically integrated operations that engender cost competitiveness.

Crisil has reaffirmed Dhandapani Finance Limited’s fixed deposit programme at ‘FA+/Stable’. The rating continues to reflect the company’s healthy capital adequacy, adequate earnings profile due to high lending rates, good risk control mechanisms and reasonable liquidity positions.

CRISIL has reaffirmed 'Grade 1' to Lal Bahadur Shastri College of Advanced Maritime Studies & Research's (LBS) simulator, non-simulator modular, and competency courses. This grading denotes that LBS' quality of education imparted in respect of the courses offered by the institute vis-à-vis the course objectives as stated by Director General of Shipping is outstanding. The assigned grade reflects LBS' competent and professional management, well-qualified and experienced faculty, and a good infrastructure, with emphasis on practical training facilities. Strong process quality and low dependence on government funding support the grading assigned to the courses at LBS.

Icra has reaffirmed the ‘LAA+’ rating assigned to the Rs. 1250 million non-convertible debenture programme of Tata Chemicals Limited (TCL). The rating reflects TCL's strong competitive position in its main businesses and the favourable financial risk profile arising from its low gearing and its strong liquidity position. The rating also draws comfort from the financial flexibility enjoyed by the company by virtue of its strong investment portfolio and from belonging to the Tata group

In an another exercise, the agency has reaffirmed the ‘A1+’ rating assigned to the Rs. 3 billion commercial papers/short-term debt programme of Mangalore Refinery and Petrochemicals Limited (MRPL). The rating takes into account the strong operational and financial performance of the company in the last few years and strengths derived from its majority shareholding by ONGC.

Care has assigned a ‘BBB’ rating to the proposed FCD issue of Rs. 105 crore of Soma Textiles and Industries Limited. The rating factors in Soma Textile and Industries Limited’s long standing position in the textile industry, improvement in margins on account of shift in the product mix towards high value added products and improved prospects of domestic textile industry, especially the revival of denim market.

Care has reaffirmed the ‘PR1+’ rating assigned to the outstanding commercial paper programme of Chennai Petroleum Corporation Limited for an amount of Rs. 150 crore. The rating takes into account the strong parentage of the company, strong and improving financials and successful completion of capacity expansion project.

Balrampur Chini Mills, the country’s largest integrated sugar company has acquired Rauzagaon unit of Dhampur Sugar for Rs 182 crore.

Larsen and Toubro has recently despatched a gas injection platform for the Bunduq company in Abu Dhabi . The platform was sailed off from the company’s coastal factory at Hazaria.

Welspun Gujarat Stahl Rohren has received an order of Rs 301.5 crore from Story Transgas, a Canadian gas company.

Dr. Reddy’s Laboratories Limited will acquire Roche’s API (active pharmaceutical ingredients) business in Cuernavaca , Mexico , at around $ 59 million deal. The acquisition is expected to be completed by the end of December 2005

ICI India has announced that it would transfer its rubber chemical business to a US based PMC group international for Rs 8 crore.

Wipro has acquired a 3.8 per cent shares in silk yarn and fabrics maker Himatsingka Seide for Rs 108.8 crore.

Aurobindo Pharmaceuticals has received tentative approval from the US Food and Drug Administration (USFDA) for its 10mg oral solution of the HIV/AIDS drug, Lamivudine.

Reliance Infocomm has decided to raise $ 500 million from overseas markets to refinance high-cost debt. The company had taken high-cost loans in the past while rolling out networks across the country.

Hindustan Coca-Cola Holdings (HCCH) will make an investment of $ 120 million (Rs 552 crore) in its bottling subsidiary Hindustan Coca-Cola Beverages (HCCB) to increase its urban and rural penetration and diversify its range of range of beverages.

Tata Steel has recently announced formation of an equal joint venture with the Australian company BlueScope Steel to foray into the zinc and aluminium metallic coated steel, painted steel and roll-formed steel products in India and South East Asia . They will also deliver pre-engineered buildings and other building solutions.

Aditya Birla group company, Grasim India , is planning to set up a Rs 700 crore Greenfield rayon fibre plant in Andhra Pradesh.

The Jiwrajka family controlled Alok group has acquired 16 per cent shares in British retail firm, Hamserd Group, for Rs 30 crore.

Kribhco and Shyam Telecom group has acquired Oswal Chemicals and Fertilisers Limited’s 8.5 lakh tonne urea plant at Shahjahanpur in Utter Pradesh in a deal of Rs 1900 crore.

The Jharkhand government and JSW Steel have signed a memorandum of understanding for a 10 million tonne steel plant with an investment of Rs 35,000 crore.

Ashok Leyland Limited has reported a 27.6 per cent growth in its sales during October 2005 to 4,281 units from 3,356 units sold in October 2004. Exports have increased to 360 units in October 2005 from 219 units in October 2004.

In a view of social security scheme for 37 crore unorganised workers in the country, the Labour Minister is expected to work out details of a cess for building a social security fund. Both the Arjun Sengupta Commission set up last year for working on social security for the sector and the National Advisory Council, in its draft unorgansied sector workers social security bill 2005, had recommended the cess as a very valid method of gathering resources for this purpose. It had suggested that the funds created would support schemes including health, life and permanent disability insurance or maternity insurance and old age pension. Such a social security fund means a special cess on select commodities or on services for the purpose.

A much talked-about Empoyees’ Provident Fund Organisation’s (EPFO) interest rate on the EPF accounts by over four crore subscribers is once again gathering steam. The Labour Ministry has called the meeting to take the decision regarding the interest rate. The Finance and investment sub-committee of the EPFO had recommended a rate of eight per cent in September. However, the trade unions representatives in the Central Board of Trustees (CBT) did not have consensus on the EPF rate with trade unions demanding at least 9.5 per cent. According to Hind Mazdoor Sabha, a certain minimum rate should be fixed with a consensus on the rate after a discussion among CBT members. It further insisted that the rate should not drop below this level under any circumstances. According to a representative in CBT, it seems that the labour minister would reduce the rate to eight per cent from the current rate of 9.5 per cent. .

The Ministry of Human Resource Development (HRD) is in a better position to demand funds for its education programme ‘Sarva Shiksha Abhiyan’, since it has already managed to spend 61 per cent of the funds allocated to the programme. The Ministry has released Rs.3801 crore till September. The funding of the programme is based on a 75:25 sharing pattern between the center and the states. The states have released 27 per cent (Rs.1071 crore) of their share, higher than the predetermined one. Together with the opening balance on April 1, the ‘Sarva Shiksha Abhiyan’ had Rs. 6156.4 crore in its kitty to spend and Rs. 3337.5 crore had been already spent till the end of September. Further, as of now, Rs.2779 crore is in the process of being sanctioned and spent. It is interesting to note that there is a considerable acceleration in spending by states. In the first quarter of the year, the all-India expenditure on the programme stood at Rs.778.9 crore, while the second quarter saw a steep increase to Rs. 2558.6 crore. At present, the utilisation rate (expenditure vs funds available) at national level is 54.2 per cent.

According to Director General of Foreign Trade (DGFT), the exports revenue is expected to grow by 20 per cent in 2005-06

The government has allowed 49 per cent foreign direct investment (FDI) in asset reconstruction companies (ARCs) but barred foreign institutional investors from equity participation in firms buying non-performing assets of the banking sector. This decision paves the way for the entry of CDC into the arena. CDC, formerly Commonwealth Development Corporation, is an agency of the UK government for private sector investments in developing countries.

Bank of India has added life insurance cover to the home loan scheme to the housing loan borrowers against risk of death during the tenure of the loan by having a group insurance scheme in tie-up with ICICI Prudential Life Insurance. As a result, in case of premature death of the borrower, the liabilities of unpaid loan are no more passed on to the legal heirs.

Tata Consultancy Services (TCS), the $2.2 billion software services provider, has acquired 100 per cent equity in Comicrom, a BPO firm based in Chile , for a consideration of $23 million (Rs.105.8 crore) in an all-cash deal. Comicrom is an established player in the pension processing space in Latin America and has around 1257 employees on its rolls. With this move, TCS has gained more strength in this field after the recent $850 million deal with the Pearl Group of the UK for taking over its pension processing.

WNS Global Services, India ’s oldest BPO firm and the largest in travel domain, has acquired US-based financial services BPO Trinity Partners. The deal is estimated to be between $50-75 million. WNS is the former captive BPO unit of British Airways, which holds equity in the company. Under the deal, all 600 Trinity employees at its 100 per cent subsidiary in Gurgaon will move to the new entity, WNS-Trinity, making WNS headcount rise to 8500. This is WNS’s third acquisition to grow inorganically. Earlier WNS acquired Claims BPO in 2003 and Assistance in 2002 to venture into the insurance and healthcare verticals respectively.

HCL Technologies has signed a 5-year deal estimated at $100 million with US-based Autodesk Inc to provide offshore application and data centre services. The company will support Autodesk in meeting the global business requirements. With 6 million users, Autodesk is the world’s leading software services company, providing solutions for building, manufacturing, infrastructure, media and entertainment and wireless data services sector.

In its notification on enhancing the FDI limit in the telecom sector to 74 per cent from 49 per cent, the government said that the Indian promoter in telecom companies should hold at least 10 per cent equity in the licensee company, as it would reflect the seriousness of the Indian investor. The notification also clarifies that any foreign component in the holding of Indian company would be proportionately counted towards the composite FDI.

As per the data compiled by the Telecom Regulatory Authority of India (Trai) India has added 3.24 million telephone subscribers in October 2005 up 2.9 per cent over September - as the country’s total telecom subscriber base reached 116.12 million. As a result, teledensity has touched 10.6 per cent from 10.3 per cent at the end of September 2005.

*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.