Current Economic Statistics and Review For the Week 
Ended January 14, 2006 (2^nd Weekly Report of 2006)

I

Theme of the week:

World Trade Organisation: Where are we? *

Introduction

International trade, according to its proponents, plays a positive role in influencing many economic activities and in turn promotes economic progress of the participating countries. Adam Smith, David Ricardo, J.S Mill, Alfred Marshall and D.H Robertson were some of the leading proponents of free trade as a means of promoting economic development. D.H Robertson argued that trade was an ‘engine of growth’. His argument was based on the transmission of positive effects from one country to another, particularly from developed to less developed countries. Advanced economies with high income levels and expanding manufacturing sector were expected to raise their demand for primary goods, in turn raising demand for exports from less developed countries (less developed economies were traditionally known to export primary goods). Increased demand for their exportables was expected to accelerate growth of less developed countries. Technology, skill and capital were expected to flow from developed nations to less developed economies with the expansion of trade. These positive benefits of trade were expected to lead to a virtuous link between developed and newly developing economies. In other words, it can be said that liberal trade policies – policies that allow the unrestricted flow of goods and services – sharpen competition, motivate innovation, breed success and in turn promote growth. However, to ensure free and fair trade, certain rules or guidelines are required and also a supervisory body to ensure that these rules and regulations are administered. GATT (General Agreement on Trade and Tariff) was the result of the attempts at guiding the world economy towards liberal trade.

General Agreement on Trade and Tariff (GATT)

At the end of Second World War, the victorious countries (especially Britain and the United States ) started to plan for viable relations in the international economy with a view to organising world trade on a liberal basis. The Bretton Woods conference held in 1944 was the starting-point in this direction. The world economy was to be organised around three cornerstones: the International Trade Organisation (ITO), the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD). The ITO was designed to help create a liberal system of regulations governing world trade; it would, in the long-run, be the vehicle that carried the world towards a system of free trade.  In 1946, while negotiations on the charter of the ITO were taking place, a group of countries came to a consensus that there was a need for immediate tariff reductions. The United States took an initiative in preparing a document on general agreement on tariffs and trade. Subsequent deliberations between the group of 23 nations, meeting in Geneva , resulted in a set of mutual tariff reductions which were codified as the GATT. The agreement was intended to be a “stepping stone” en route to the establishment of the ITO. However, ITO never came into existence¹ and this left GATT as the framework for trade relations. The procedures governing the bilateral negotiations and the manner in which these are transformed into multilateral agreements, are at the core of the basic principles of the GATT. Negotiations under the GATT take the form of “Rounds” of which the Uruguay Round was the eighth and which saw the inception of WTO².

Inception of WTO in Uruguay Round: Transition from GATT

The Uruguay Round of multilateral trade negotiations held in Punta del Este , Uruguay , in September 1986 was the most comprehensive and ambitious among the rounds of negotiations held under GATT. The negotiations were to be completed in four years, but because of crises and deadlocks that developed from time to time, they dragged on for seven to eight years. The negotiations were formally concluded at the Ministerial Meeting held in April 1994 in Marrakesh , Morocco , which gave birth to the most dominating and all life-embracing multilateral body christened the World Trade organisation (WTO). Thus with the establishment of World Trade Organisation (WTO). as on January 1, 1995, GATT ceased to be a separate institution and became a part of WTO. The WTO has become the umbrella organisation responsible for overseeing the implementation of all the multilateral and plurilateral agreements that have been negotiated in the Uruguay Round and those that will be negotiated in the future. The Final Act embodying its results came into force on 1 January 1995. Broadly the results were:

·        The improvement of the rules of GATT and its associate agreements. These apply to trade in goods.

·        The adoption of the Agreement on Trade in Services (GATS), bringing the growing trade in services under the international discipline for the first time.

·        The adoption of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS); the Agreement laid down uniform standards for the protection of these rights.

·        Adoption of the Agreement on Trade-Related Investment Measures (TRIMS) for trade in goods only, with specific provisions for protecting the interests of developing countries such as freedom for them to deviate temporarily from the relevant provisions on grounds of balance of payments, etc.

Before the Uruguay Round negotiations, there was no specific agreement on intellectual property rights in the framework of the GATT multilateral trading system. The World Trade Organisation's (WTO) Trade Related aspects of Intellectual Property Rights (TRIPS) Agreement was one of the major achievements of the Uruguay Round. It sets out minimum standards of intellectual property protection that WTO members must provide.

All WTO member countries are required to adopt national legislation and regulations to implement the rules prescribed by the three agreements – GATT 1994 (as the GATT is now called), GATS, the Agreement on TRIPS and the Agreement on TRIMS. WTO is responsible for the surveillance of the implementation of these rules by its Members.

Functions of WTO

The Agreement establishing WTO provides that it should perform the following four functions:

1.      it shall facilitate the implementation, administration and operation of the Uruguay Round legal instruments and of any new agreements that may be negotiated in the future.

2.      it shall provide forum for further negotiations among member countries on matters covered by the agreements as well as on new issues falling within its mandate.

3.      it shall be responsible for the settlement of differences and disputes among its member countries (Dispute Settlement body).

4.      it shall be responsible for carrying out periodic reviews of the trade policies of its member countries.

The apex WTO body responsible for decision-making is the Ministerial Conference, which has to meet at least every two years. It brings together all members of WTO, all of which are countries or custom unions. The Ministerial Conference can take decision on all matters under any of the multilateral trade agreements. During the two years between meetings, the functions of the Conference are performed by the General Council. The General Council meets as a Dispute Settlement Body when it considers complaints and takes necessary steps to settle disputes between member countries. It is also responsible for carrying out reviews of the trade policies of individual countries on the basis of the reports prepared by the WTO secretariat. The General Council is assisted in its work by the: Council for Trade in Goods, which oversees the implementation and operation of GATT 1994 and its associate agreements; Council for Trade in Services, which oversees the implementation and operation of GATS; and Council for TRIPS, which oversees the operation of the Agreement on TRIPS.

II

Agreement on Agriculture (AoA): Salient Features and Implementation

Another major achievement of the Uruguay Round was the institution of an Agreement of Agriculture (AoA). The original GATT did apply to agriculture but it contained loopholes (mentioned briefly under the following section). The Uruguay Round produced the first multilateral agreement dedicated to the sector. It was a significant first step towards order, fair competition and a less distorted farm sector growth.

Need for Agriculture Reforms: A brief background

Agricultural negotiations have constantly remained at the heart of WTO. Developing countries have always been mainly agrarian economies and have a comparative advantage over developed ones vis-à-vis exports of agricultural products. Agricultural exports form a major part of developing as well as least developed economies merchandise export. However, the share of these countries in total world agriculture trade has been quite small till date. (Tables 1 and 2). To boost their exports, to provide them with a fair chance to compete in the international market and to enable these economies to realise gains from trade (one of the main objectives of GATT/WTO), it was felt necessary to remove/reduce trade distortions in the agriculture sector. To accomplish this, Agreement on Agriculture (AoA), with the objective of reforming this sector and makeing policies more-market oriented came into existence as a result of the Uruguay Round.

As stated above, the original General Agreement on Tariffs and Trade (GATT) 1947 applied to trade in agriculture also, but it allowed countries to use non-tariff measures and subsidies, which led to severe distortions in world agricultural trade. For instance, GATT 1947 allowed countries to use export subsidies on agricultural products when export subsidies on industrial products were prohibited. The GATT rules also allowed countries to resort to import restrictions (e.g. import quotas) in the agriculture sector under certain conditions. Import access barriers, particularly in the developed world, made it difficult for developing world or agri-producing countries to sell their products in the market. At the same time, export subsidies used by the developed world allowed them to dump their surpluses on to the world market thus depressing the world market prices for such products. Dumping as well as low world food prices reduced the incentive for farmers in developing countries to increase or even maintain their agricultural production level. The result of all this was a proliferation of impediments to world agricultural trade. Hence, it was felt that the disciplines of GATT, which traditionally focused only on import access problems, should be extended to measures affecting trade in agriculture, including domestic agricultural policies and the subsidisation of agricultural exports. By the time the GATT members met in Punta del Este in 1986 to launch the Uruguay Round of Trade Negotiations, consensus had been reached that it was necessary to reform agricultural policies in order to achieve trade liberalisation in agriculture. The idea was to progressively reduce trade-distorting subsidies, improve import access and curb export subsidies in agriculture.

Salient Features of the Agreement

The Agreement on Agriculture (AoA) as it stands today has formed part of the Final Act of the Uruguay Round of Multilateral Trade Negotiations (1986-1993) and it was signed as part of the Uruguay Round Agreement by the member countries in April 1994 at Marrakesh in Morocco . It also came into force on January 1 1995, along with other agreements. As per the provisions of the Agreement, the developed countries were expected to complete their reduction commitments within 6 years, i.e., by the year 2000, whereas the commitments of the developing countries would be completed within 10 years, i.e., by the year 2004. The least developed countries were not required to make any reductions.

The WTO AoA contains provisions in 3 broad areas of trade and agriculture policies: market access ², domestic support² and export subsidies.

Market Access

The AoA states that there can be no restriction on farm trade except through tariffs. This means that non-tariff barriers such as quantitative restrictions on imports (i.e., quotas, import restrictions through permits, import licensing etc.) as were in existence before the Agreement came into being, were to be replaced by tariffs on imports to provide the same level of protection and then were to be followed by progressive reduction of tariff levels. Tariffs resulting from this "tariffication process"⁴ as well as other tariffs were to be reduced by a simple average of 36 per cent over 6 years in the case of developed countries and 24 per cent over 10 years in the case of developing countries. Those developing countries, which were maintaining Quantitative Restrictions due to balance of payment problems, were allowed to offer ceiling bindings instead of tariffication. The tariffication package ensured that quantities imported before the agreement took effect, could continue to be imported, and it guaranteed that some new quantities were charged duty rates that were non prohibitive. This was achieved by a system of “tariff-quotas” – lower tariff rates for specified quantities, higher rates for quantities that exceed the quota.

For products whose non-tariff restrictions were supposed to be converted to tariffs, government were allowed to take special emergency actions (“special safeguards”) in order to prevent swiftly falling prices or surges in imports from hurting their farmers. However, the agreement specified when and how those emergency actions can be introduced (for example, they cannot be used on imports within a tariff-quota)

Domestic Support

The main complaint about policies which support domestic prices or subsidise production in some other way, is that they encourage over production. This squeezes out imports or leads to export subsidies and low-priced dumping on world markets. The Agreement on Agriculture distinguishes between the acceptable measures of support (which have no direct effect on production) to farmers and curtailing unacceptable trade distorting support (stimulates production directly) given to farmers. Domestic support can be divided into two categories namely,

 The first one is in the form of support with no, or minimal, distortive effect on trade (often referred as “Green Box” measures). “Green Box” measures include government services such as research, disease control, infrastructure and food security. They also include payments made directly to farmers that do not stimulate production, such as certain forms of direct income support, assistance to help farmers restructure agriculture and direct payment under environmental and regional assistance programmes. They are not subject to reduction in the AoA.

Also permitted are certain payments to farmers where the farmers are required to limit production (sometimes called “Blue Box” measures not subject to reduction under AoA), certain government assistance programmes to encourage agricultural and rural development in developing countries and other support on small scale ( called “de-minimis” : product specific subsidy in developed countries is 5 per cent of that commodity’s production and in addition, non-product specific subsidy is 5 per cent of total agricultural production. For the developing countries it is 10 per cent of both.).

The second one is in the form of trade distorting support (often referred as “Amber Box” measures), which have direct impact on production and trade, have to be cut back under the AoA. WTO members calculated how much support of this kind they were providing per year for the agricultural sector (using calculations known as "Total Aggregate Measurement of Support" or “Total AMS”) in the base years 1986-88. The Agreement on Agriculture stipulated reduction of total AMS by 20 per cent in developed countries in 6 years (1995-2000) and by 13.3 per cent for developing countries in 10 years (1995-2004).

In addition Special and Differential Treatment provisions are also available for developing country members. These include purchases for and sales from food security stocks at administered prices provided that the subsidy to producers is included in calculation of AMS. Developing countries are permitted untargeted subsidised food distribution to meet requirements of the urban and rural poor. Also excluded for developing countries are investment subsidies that are generally available to agriculture and agricultural input subsidies generally available to low income and resource poor farmers in these countries.

Export Subsidies

The Agreement prohibits export subsidies on agricultural products unless the subsidies were specified in a member’s list of commitments. Where they are listed, the agreement requires members to cut both the amount of money spent on export subsidies and also the quantities of exports that receive subsidies. Taking averages for 1986-90 as the base level, developed countries were required to reduce their quantity of subsidised exports by 21 per cent and the corresponding budgetary outlays for export subsidies by 36 per cent in 6 years, in equal installments (from 1986-1990 levels). For developing countries the percentage cuts were 14 per cent in volume and 24 per cent in budgetary outlays over a period of 10 years. Also, developing countries were free to provide certain subsidies, such as subsiding of export marketing costs, internal and international transport and freight charges etc. Least-developed countries were not required to make any cuts.

Implementation of the Agreement

It is now an established fact that the Uruguay Round did not bring about trade liberalisation in agriculture to the desired extent. During the Uruguay Round, it was expected that following the Agreement, distortions in agricultural trade would be reduced and scope for exports of products from developing countries would increase and also the contemplated fair trading regime would help the efficient producers in realising higher prices for their products. However, the anticipated increase in exports of agricultural products from developing countries has not been attained and neither has the realisation of higher prices materialised. This has been because there were no significant reductions in domestic support as well as export subsidies by the developed countries. A number of developed countries have continued to provide high domestic support to their agricultural sectors. At best the policies in many developed countries have only been cosmetically altered by shifting the support from one "box" to another. The continuation of the high domestic support to agriculture in many developed countries is a cause of concern as they encourage over-production in these countries leading to low levels of international prices. It is obvious, therefore, that benefits to developing countries in terms of increasing their exports will only occur after complete elimination of export subsidies and substantial reduction in domestic support in the developed countries has been effected.

Market Access in the developed countries is also hampered by their maintaining high tariffs on products of interest to developing countries besides a plethora of non tariff barriers. Tariff peaks continue to block exports from developing countries to the developed world. Tariff escalation (increase in tariff with successive stages of processing) block exports of value-added products from developing countries to the developed countries.

To sum up, the expectations about reductions in domestic support or export subsidies prevailing in the developed countries at the time of conclusion of AOA have not materialised. Market access has thus been effectively denied to developing countries.

A Brief Summery of Various WTO Ministerial Conferences

As mentioned above, World trade Organisation, successor to General Agreement to Tariffs and Trade (GATT), was established in 1995 as a result of Uruguay round. Since its inception, the WTO has held six Ministerial Conference till date: 1996 in Singapore , 1998 in Geneva , 1999 in Seattle , 2001 in Doha , 2003 in Cancun and now the most recent one in 2005 in Hong-Kong. This section provides a brief summery of issues covered under these Conferences.

Singapore Ministerial Conference

• The first WTO Ministerial Conference was held in Singapore during December 9-13 1996.

• Issues like trade facilitation, investment, and transparency in government procurement were discussed in the conference.

• The working groups were established to examine the relationship between trade and investment and interaction between trade and competition policy.

Geneva Ministerial Conference

• The second WTO Ministerial Conference was held in Geneva during May 18-20, 1998.
• For the first time, developed nations undertook the commitment to reduce the subsidies and trade distorting support in agriculture.
• Provision for special safeguard mechanism and concept of food security for the developing countries were the major highlights of this conference.

Seattle Ministerial Conference

• The third Ministerial conference was held at Seattle during November 30- December 04, 1999.

• A review of the scope, structure and time frame of WTO negotiations were planned.

• It was supposed to launch a new round of negotiations called the Millennium Round. However, the conference failed to take off amidst massive protest against WTO.

Doha Development Round

Doha development round of world trade negotiations was launched at the 4^th WTO Ministerial Conference in November 2001. It adopted a work programme known as Doha Development Agenda – DDA - that was expected to start a broad Round of trade negotiations focusing on the needs and interest of the developing countries. This round included negotiations on agriculture, Non Agricultural Market Access (NAMA), trade and environment, trade facilitation, services, and Special and Preferential Treatment for developing countries.

• Agriculture: The negotiations that started in 2000 were continued, but with the mandate given by Doha round, which included a series of new deadlines. The member governments committed themselves to comprehensive negotiations aiming at substantial improvements in market access; reductions of, with a view to phasing out, all forms of export subsidies; and substantial reductions in trade-distorting domestic support. The member countries also agreed that special and differential treatment for developing countries should be an integral part of all elements of the negotiations and would be embodied in the schedules of concessions and commitments. This would enable developing countries to effectively take account of their development needs, including food security and rural development.

§         NAMA: Here lowering or to be more appropriate, elimination of tariff was the central element of negotiations, along with the reduction or elimination of tariff peaks, high tariffs, and tariff escalation, as well as non-tariff barriers, in particular on products of export interest to developing countries. Tariff peaks, which are relatively high tariffs, are usually on “sensitive” products, amidst generally low tariff levels. On the other hand, tariff escalation is one in which higher import duties are applied on semi-processed products than on raw materials, and higher still on finished products. This practice protects domestic processing industries and discourages the development of processing activity in the countries where raw materials originate. The member countries were also expected to reach the agreement on how to conduct the tariff-cutting exercise (“modalities”). The agreed procedures would include studies and capacity-building measures that would help least-developed countries participate effectively in the negotiations.

§         Services: The General Agreement on Trade in Services (GATS) defines 4 modes of delivering or trading services. Mode 1 is where services are supplied from one country to another (for example international telephone calls), officially known as “cross-border supply”; Mode 2 is where consumer or firms make use of a service in another country (for example tourism) officially known as “consumption abroad”; Mode 3 is where a foreign company sets up subsidiaries or branches to provide services in another country (for example foreign banks setting up operations in a country), officially known as “commercial presence” and Mode 4 is where individuals travel from their own country to supply services in another country (for example fashion models, architects or consultants), officially known as “movement of natural persons.

Taking guidelines and procedures for the negotiations adopted by the Council for Trade in Services on March 28, 2001 as the basis for continuing the negotiations, DDA provided for further liberalisation of international trade in services. The Guidelines and Procedures for the Negotiations on Trade in Services refer to the request-offer or bilateral bargaining as the main method of negotiation between government to improve market access in each other’s market, the results of which would be applied to all trading partners.

§         Special and differential treatment: The Doha Declaration committed members to take account of non-trade concerns (e.g. environment, rural/social development, animal welfare) and to negotiate special and differential treatment for developing countries. Special and Differential Treatment provisions emphasised increased flexibility and lower reduction commitments for developing countries. LDCs were exempted from any commitments whilst developed countries, and those developing countries able to do so, should provide duty and quota-free access to LDC imports.

• TRIPS Provision:

Intellectual property rights can be defined as the rights given to people over the creations of their minds. They usually give the creator an exclusive right over the use of his/her creations for a certain period of time. Intellectual property includes copyright, trademarks, geographical indications and patents.

The Ministerial Declaration of the 4^th World Trade Organisation Ministerial Conference in Doha directed the TRIPS Council (it is the body; made up of all WTO Members, whose task it is to monitor the operation of the TRIPS Agreement) to complete negotiations concerning geographical indications by the next session that is by the 5^th Ministerial Conference. At this Ministerial Conference the member countries agreed on a declaration concerning the TRIPS Agreement and public health. This recognised that TRIPS allows WTO Members to take measures to protect public health.

However, the member countries fail to reach any consensus regarding the modalities vis-à-vis agriculture and non-agriculture market access by the prescribed target dates. Further they also missed deadlines for resolving the important issues of implementation, special and differential treatment for developing countries, reforming the Dispute Settlement Understanding, resolving the vitally important question of enhancing access to medicines for the poorest countries, which lack the capacity to manufacture generic drugs under license.

Cancún Ministerial Conference

The Fifth Ministerial Conference held in Cancún , Mexico , in September 2003. In the Doha Ministerial Declaration, ministers had set for themselves, three tasks to take stock of progress in the negotiations, to provide any necessary political guidance, and take decisions as necessary. Failure to meet the required deadlines set for the Doha development round increased the burden on the decision making process in this conference. Thus the main task in front of the members was of deciding whether or not to agree on the modalities, or framework, and also to complete rest of the negotiations like Singapore issues of investment, competition, transparency in government procurement and trade facilitation, system for notification and registration of the geographical indications for wines and spirits.

However, the meeting was soured by discord on agricultural issues, including cotton, and ended in deadlock on the “ Singapore issues”. Real progress on the Singapore issues and agriculture was not evident until the August 1, 2004. A set of decisions in the General Council sometimes called the July 2004 package was attained and it set the new deadline of July 2005 for negotiations. However, no consensus was reached and after that, members unofficially aimed to finish the negotiations by the end of 2006.

IV

Hong-Kong Ministerial Conference

The next milestone in the round has been the Ministerial Conference in Hong-Kong from December 13^th to December 18^th 2005. The key issues of this round are briefly spelt out below.

Farm Subsidies: Although there are problems in all the critical areas of agriculture namely market access, domestic subsidy and export subsidy, the key issue has been about a cut in domestic subsidy given by the developed nations. The aim has been to slash domestic agricultural subsidy by the developed nations, which distorts the world markets. However, reducing domestic subsidies is a complicated procedure as they are spread over three boxes viz. amber, blue and green and hence there is a risk of maintaining the same level of subsidies by the developed nations by merely shifting subsidies from one box to another. Developing nations have emphasied on 45-75 per cent tariff reduction by developed countries. On the other hand, developed countries have put pressure on developing nations to lower their import duties on agricultural products by 25-40 per cent. However, lowering of the import tariff by developing countries would lead to flooding of their markets with subsidy-induced low priced farm products thus rendering domestic farmers to be uncompetitive.

Tariffs: Tariffs have emerged as the most politically sensitive area for both developed and developing countries. The issue concerns reduction of tariff peaks, high tariffs and tariff escalations as well as non-tariff barriers (NTBs) by developed countries in particular on products of export interest to developing countries.

Industrial Goods: known as NAMA in WTO parlance, they account for 60 per cent of world trade. At the Doha Ministerial Conference in November 2001, ministers agreed to start negotiations to further liberalise trade in non-agricultural goods. To this end, the Negotiating Group on Market Access (NAMA) was created at the first meeting of the Trade Negotiations Committee, in early 2002.The developed nations have demanded removal of all protectionist measures by developing countries aimed at liberalisation of industrial and manufacturing markets. This also calls for removal/reduction in tariff (tariff peaks and tariff escalation) as mentioned previously. However, a formula for the reduction of tariffs line by line (cut in tariff on each product) is yet to be agreed upon. The major developed countries have pushed for ‘Swiss Formula’ which links the final tariff with the initial tariff through a coefficient, no matter how high the initial tariff maybe. Higher tariffs are subjected to very high cuts so that no tariff remains above the coefficient. On the other hand, developing nations have suggested a coefficient based on current average tariff.

Services: services account for 70 per cent of global economic activity but less than a third of world trade. The aim is to liberalise international trade in services and the issue is the method of negotiation as well as on modes. So far the negotiations have been on the basis of request-offer approach among the countries. This allows developing countries flexibility in making concessions. However some developed countries have proposed a new form of complimentary method through what is called plurilateral approach, where a group of countries will hold negotiations in specific sectors. The fear is that the developing nations will be obliged to join the negotiations even though they may not be keen to do so.

Conclusion to the Hong-Kong Round

The main development of the Hong-Kong meet has been mainly an agreement for the elimination of export subsidies on farm goods by 2013 and the dates along with the completion of modalities to be worked out in the next meeting scheduled in April 2006. The developed countries have also agreed to the G-20 proposal for three bands for reduction in the final bound total trade distorting subsidies, with higher linear cuts in higher bands. However, the extent of reduction is to be negotiated. Least Developed Countries (LDC’s) have been promised free access to developed countries market for at least 97 per cent of their goods.

The Swiss formula, consistently opposed by the developing countries, has been finally formally adopted. This will mean higher cuts on a line-by-line basis (affecting all products) for countries levying higher tariffs. How deep will be the cuts will depend upon the coefficients, which are yet to be agreed upon. This decision is again a complex one as there are two proposals: one coefficient for developing countries and another (different) for developed countries; multiple coefficients, based essentially on the average bound tariff of each country.

The developing countries have accepted the proposal of developed countries to adopt the plurilateral approach to the negotiations on services

One major point needs to be noted that the agreement reached for the elimination of export subsidies by 2013 is tentative in the sense that it is subject to completion of the modalities, which is going to be a complex task. According to the Ministerial Declaration as adopted on December 18, 2005 “We agree to ensure the parallel elimination of all forms of export subsidies and disciplines on all export measures with equivalent effect to be completed by the end of 2013. This will be achieved in a progressive and parallel manner, to be specified in the modalities,………… The date above for the elimination of all forms of export subsidies, together with the agreed progressivity and parallelism, will be confirmed only upon the completion of the modalities”. The completion of modalities will not only involve progress in dealing with export credits, export credit guarantee and food aid – the device resorted to mainly by the US – but also upon agreement on other major components of the modalities on agriculture.

The deadline for agriculture and NAMA modalities is on April 30, 2006, and only when an agreement acceptable to all member countries on these modalities is achieved, one would be able to understand the full implications of these negotiations.

End-notes

1. A conference in Hawana in 1947-48 did establish a charter for ITO, however, disagreement between the United States and Britain over the extent of the authority of the proposed ITO over the actions of governments prevented the ratification of the charter; in particular, it was never ratified by the US senate. No other country would ratify it either, and thus the ITO was never established.

2.      The IMF and the World Bank were set up after protracted negotiations but these are not discussed here as they are not of relevance to the present note.

3. The figures for cuts (except for figures for cutting export subsidy) do not actually appear in the Agreement of Agriculture. Participants used them to prepare their schedules – that is list of commitments. It is the commitments listed in the schedules that are legally binding.

4. Tariffication means that all non-tariff barriers such as quotas, variable levies, minimum import prices, discretionary licensing, state trading measures, voluntary restraint agreements etc. need to be abolished and converted into an equivalent tariff

References

Business Guide to the Uruguay Round 1996 published by International Trade Centre (UNCTAD/WTO) and the Commonwealth Secretariat.

Dubey Muchkund (2006), “WTO’s Hong Kong Conference: An Appraisal”, Economic and Political Weekly, Vol.XLI No. 1, January 7-13.

Khor Martin (2005), “WTO’s Hong Kong Conference-I: Imbalanced Outcome”, Economic and Political Weekly, Vol.XL No. 52 December 24-30.

Muralidharan Sukumar (2005), “WTO’s Hong Kong Conference-II: Development Deficit Agenda of Doha Round”, Economic and Political Weekly, Vol.XL No. 52 December 24-30

India Today (2006), “United Colours of Globalisation” Issue dated January 02

Sodersten and Reed (1994), “International Economics”,  published by Macmillan Pvt Ltd

World Trade Organisation (2005), Doha Work Programme, Ministerial Declaration adopted on December 18, 2005.

World Trade Organisation's official web site: www.wto.org and Ministry of Commerce  web site: www.commerce.nic.in

* (This not has been prepared by Abhilasha Maheshwari and Pallavi Oak)

Highlights of  Current Economic Scene

AGRICULTURE     

o       The central government has planned to reduce grain ration under the public distribution system and also has raised the price for all but the poorest households. The government has decided to reduce the monthly grain entitlement for families below the poverty line from 35 kg to 30 kg and for the families above poverty line, from 35 kg to 20 kg. The decision has been taken on the background that overall procurement has come down and so availably is lower. The centre has decided to cut the food subsidy from current Rs 26,200 crore to around Rs 24,200 crore. The centre, however, has allowed the families below the poverty line and those covered under the Antyodaya Anna Yojana to buy wheat and rice at the previous price levels i.e. at Rs 4.15 per kg and Rs 5.65 per kg respectively. Trade Unions, however, has opposed the decision reasoning that it would be financially burdensome for the poorer  section in the society.

• The agriculture sector is increasingly attracting the attention of corporates in the country. Reliance Industries and ITC have expressed interest in setting up big box agriculture marketing complexes to be positioned as terminal market complexes (TMC). Though country’s annual output of horticulture produce is over 125 million tonnes, a large portion of it is wasted due to lack of adequate processing and storage facilities. Participation of private sector is expected to strengthen these weak links of the agriculture sector. Each TMC will handle fruits, vegetables, flowers, aromatics and herbs, besides poultry and meat with the handling capacity in each TMC ranging from 2-lakh tonnes to 6 lakh tonnes per annum and may cost between Rs 60 crore to Rs 120 crore. The plan is to have 8 TMCs operational in the centres like Mumbai, Nasik , Patna , Chandigarh , Bhopal , Nagpur , Kolkata, Rai (Haryana).

o       An Export-oriented horticultural complex has been planed to be set up near the Calcutta airport. It would provide exporters of horticulture products facilities like sorting and grading, packaging and cold storage. The project would be a joint venture between government agencies and a private sector investor and would cost around Rs 93 crore. The National Agriculture Institute would share 86 per cent of the project cost and a private investor would put in the rest.

INDUSTRY

·        Pharmaceuticals

o       In a pre-budget memorandum, the Indian Pharmaceutical Alliance (IPA) has demanded certain types of business expenditure such as those relating to free samples for physicians and gifts used for sales promotion to be exempt from fringe benefit tax (FBT). It has also asked that foreign exchange income earned as license fees, royalty and/or milestone payments from intellectual property should be treated on par with export income and be exempted from income tax for a period of ten years. Additionally, it has said that the expenditure categories qualifying for 150 per cent R&D exemption should include those incurred on clinical trails, on obtaining product registration from foreign authorities like USFDA and on filing of patents abroad as also on expenditure on land and buildings to be used for R&D. The IPA has also sought duty exemption on clinical trial samples imported after getting DCGI authorisation, and also exemption from service tax for clinical research organisations that provide clinical trial, drug development and data management services.

·        Textile Machinery

o       The textile industry has asked for an extension of the 10 per cent upfront capital subsidy for specified textile processing machinery by another year till April 2007. This subsidy is over and above the interest subsidy of 5 per cent under the Technology Upgradation Fund Scheme (TUFS) for specified textile processing machinery.

INFRASTRUCTURE

·        Power

o       The power ministry has begun the implementation of its plan for the development of ultra mega power based projects of capacity of 4000 megawatts and above with expandable capacity of 10000 megawatt, entailing an investment of Rs 80000 crore. The Power Finance Corporation, the nodal agency appointed for the purpose, has identified sites in Madhya Pradesh and Chhattisgarh for one each pithead coal based project and in Karnataka and Gujarat for one each imported coal based project.

o       According to Indian Electrical and Electronics Manufacturers’ Association, the Indian power industry has registered 15.5 per cent growth during April-December 2005, experiencing growth in areas such as transmission lines, switchgears and capacitors.

·        Petroleum, Petroleum Products and Natural Gas

o       IOC and OIL are all set to jointly acquire 90 per cent participating interest in an exploration block Venus in Gabon , adjoining the British Gas - Remboue oilfields. The total cost of the project is close to $ 1.2 billion and the initial risk money would be Rs 228 crore including entry cost and initial exploration cost. This could be an excellent opportunity to enter into Gabon ’s upstream petroleum sector, considering a recovery factor of 30 per cent (comparable to the BG-Reboue producing field) the likely recoverable reserves are estimated to be 167 million barrels. As per IOC, the block would offer a attractive rate of return of 35 per cent and 44 per cent for respective crude oil prices of $ 35 a barrel and $ 40 a barrel.

·        Coal

o       The energy coordination committee has recommended that, excepting power, the coal linkages for the sectors of sponge iron, steel and cement should be reduced from the current 100 per cent to 80 per cent.

o       The prime minister’s office has supported the recommendation of Commission headed by Ratan Tata to dereserve some of the coal mining blocks under Coal India Limited (CIL) in favour of central and state government companies for mining. Currently, 289 blocks are reserved for CIL of which 229 have been explored. However only 150 of these are planned for production up to the end of the 11^th five-year plan. The Commission has proposed that to increase coal supply, the remaining 79 blocks that have already been explored in detail but not planned for production be till end of the 11^th Plan by CIL, should be available to government companies for mining. The estimated coal reserves in these blocks ranges from 200 million tonne to 1900 million tonne.

·        Shipping

• The plans of Pohang Steel Company (Posco) from Korea to set up a port at Jatadhari in Orrisa, 7 kilometres away from Paradip port have been met with environmental concerns regarding soil erosion due to the port. While Posco has rubbished the suggestion of the port being environmentally unfriendly, the shipping ministry has suggested that an environmental feasibility study be jointly conducted before embarking on the Rs 4000 crore project.

• The Jawaharlal Nehru Port Trust (JNPT), which handles over 56 per cent of container traffic in India , has handled 2.58 million twenty equivalent foot units (TEU) of container traffic in calendar year 2005 compared with 3.6 million TEU in 2004, registering a 9.32 per cent growth. Along with it has posted a 11.72 per cent growth in handling total traffic at 36.21 million tonne in 2005 against a target of 34.99 million tonne. The good growth impulses can be attributed to better utilisation of existing infrastructure and improvements in infrastructure facilities.

·        Railways

• The railway ministry has released the container policy, which would allow private players to run container trains for import and export traffic, bringing an end to Container Corporation of India ’s (Concor) long held monopoly in the business. Several companies including Reliance Industries Limited, Maersk Lines, Central Warehouse Corporation, Adani Exports, Hindustan Infrastructure, Gateway Distriparks Limited, have evinced interest in the business.

·        Roads

• The Centre is planning to include the Talcher-Duburi stretch on NH-200 in the NHDP to facilitate Korean steel major Posco’s proposed $ 12 billion steel project in Orissa. Posco has earmarked the stretch as a potential linking route from the proposed steel plant to Pardip port and to the company’s captive port coming up at Jatadhari some 7 kms away from Paradip port.

INFLATION

o       The annual point-to-point inflation rate based on wholesale price index has gone down to 4.40 per cent during the week ended December 24, 2005 from 4.62 per cent registered during the previous week. The inflation rate was higher at 6.56 per cent in the corresponding week last year.

o       The WPI in the week under review has declined by 0.2 per cent to 196.8 from the previous week’s level of 197.1 (Base: 1993-94=100). The index of primary articles’ group (weight 22.02 per cent) has declined considerably by 0.4 per cent to 194.3 from the previous week’s level of 195.1, due to a considerable decline in the price index of food articles group. The index of food articles declined by 0.7 per cent to 196.3 from 197.7 in the last week, mainly due to lower prices of fruits and vegetables, poultry chicken, moong and rice. The index of ‘fuel, power, light and lubricants’ group (weight 14.23 per cent) has remained unchanged at the previous weeks level of 311.1. The index of ‘manufactured products’ group constituting the maximum of 63.7 per cent of total weight, has declined a tad by 0.1 per cent to 172.2 from the previous week’s level of 172.4, mainly due to lower prices of food products and ‘chemicals and chemical products’.

o       The latest final index of WPI for the week ended October 29, 2005 has been revised; as a result both, the absolute index and the implied inflation rate remained unaltered at their provisional week’s level of 198.3 and 4.75 per cent, respectively.

o       Overall, the rate of inflation has remained reasonably contained in the range of 4 to 4.5 per cent in the month of November and December. Moreover, the Finance Minister has also assured over price stability by emphasising on fiscal measures, if necessary. He added that the current rate of inflation, which is below 5 per cent is not a cause of concern.

BANKING

• The coverage of the Reserve Bank of India (RBI)’s real-time gross settlement (RTGS) system has crossed 15,000 bank branches. The system’s membership now includes 96 banks, 14 primary dealers and the RBI.

• The RBI has cancelled the certificate of registration issued to Harrison Malayalam Financial Services Ltd. having its registered office at Kochi , for carrying on the business of a non-banking financial institution as the company has opted to exit from the business of non-banking financial institution.

• Punjab National Bank has revised the interest rates on term deposits for the period ranging from 180 days to 10 years. The interest rates for deposits having an maturity period between 180 days to 1 year have been increased to 5.54 per cent from 5.5 per cent earlier, while that for maturity period between 1 year to 2 years has been increased to 5.88 per cent from 5.75 per cent. Interest rates for deposits’ having a maturity period of 5 years has been increase to 7.61 per cent from 6.5 per cent.

• The finance ministry and the RBI have agreed to allow foreign banks to open 20 branches a year in the country as against 12 now. The easing of the restriction would, however, be contingent on RBI’s policy that new branches should be preferably being opened in under-banked areas, according to official sources. At present, 40-odd foreign banks have over 225 branches in India . Though the government’s guidelines for entry of foreign banks in India are restrictive, the move to allow more branches reflects India ’s willingness to go beyond its WTO commitments. Foreign banks wanting to expand their presence in India more quickly would, however, continue to be prevented by the RBI’s restrictive roadmap of February 2005. As per the roadmap, a foreign bank will have to wait till March 2009 (when the policy is slated for a review to acquire majority stake in Indian private banks.

PUBLIC FINANCE

·        Tax revenue

o       Direct tax collections during April-December 2005 increased 21 per cent to Rs 97,900 crore but the collection was just 55 per cent of the budget estimates of Rs 1,76,812 crore. It is expected that the shortfall in collection for the entire financial year could be about Rs 8,000-Rs 12,000 crore, despite optimism expressed by finance minister P Chidambaram of achieving the budget target. The shortfall could be narrower if the tax department succeeds in raising the current demand  on current assessment. Corporation tax collection was up 22 per cent to Rs 61,000 crore during April-December 2005 after companies paid up the third instalment of advance tax. Personal income tax collection, which comprises largely tax deducted at source (TDS) on salary income and self assessment by non-salaried and non-corporate entities, increased 19 per cent to Rs 36,900 by the end of December 2005. Collections under personal income tax included Rs 3,680 crore, on account of fringe benefit tax of Rs 1,780 crore, securities transaction tax of Rs 1,720 crore and banking cash transaction tax of Rs 180 crore. Thus, personal income tax collection as such grew just 8 per cent  to Rs 33,220 crore at the end of the third quarter of the financial year 2005-06. Fringe benefit tax collection is expected to see a rise of Rs 800-850 crore by the end of this month as the third instalment of the tax is due to be paid by January 15.

·        Tax-related issues

• The I-T department has intensified its efforts to track high spenders evading taxes. Named as ‘Operation Lifestyle’ the target group is those who spurge on expensive lifestyle  products such as home theatres and plasma TVs, watches and pens, designer and imported furniture, modular kitchens and artefacts. The department thinks that unaccounted income could have gone into the purchase of these products. Pune is reckoned to be a potential centre for operational lifestyle  considering the boom in IT and ITES centre. Survey were launched across the country  and information on high value spenders was obtained from dealers. In Delhi , letters have already been dispatched to high value spenders.

• The government has no plans to levy tax on savings bank accounts, at least in the coming financial year. Currently, the 0.1 per cent tax is being levied by 350 odd scheduled banks on withdrawals from current accounts above certain threshold. The idea of imposing the levy is checking for money laundering. 

• Disinvestment

• The National Investment Fund remained dormant with no  earnings from the divestment of PSUs accruing to it. The government will not be in a position to invest funds and route the earnings from it to social sector programmes this financial year. It expects to garner only about Rs 3,000 crore from the sale of residual stakes of Maruti Udyog, Balco and Hindustan Zinc  this financial year.

·        Government subsidy bill

• The government pruned the subsidy bill by slashing the targeted public distribution system allocation from the current Rs 26,200 crore to around Rs 24,200 crore.

• According to the Cabinet decision, foodgrain allocation for the above poverty line (APL) families will be brought down from 35 kg to 20 kg per month. For the below poverty line and Antyodaya households, the government has decided to continue the central issue prices at the existing level.

·        Pre-budget recommendations

• The Confederation of Indian Industries (CII) states that the scope of items covered under Fringe Benefit Tax (FBT) is unduly large. Taxing  business expenditures affects the competitiveness of the industries in the global market. This is particularly true for the some of the fast-growing knowledge based sectors like software, IT-enables services, pharmaceuticals, travel and hotel industry, where FBT related expenses constitute a large portion of their overall expenditures, the chamber said in the pre-budget memorandum.

• According to the secretary general of PHDCCI, “FBT has been deeply resented  by assesees as it has not only imposed additional tax burden by taxing even legitimate business expenses, but has also enhanced the cost of compliance  two-fold. Estimates reveal that the cost of compliance with the direct tax laws could be around Rs 1,000 crore per annum, even if  revenue through FBT touches Rs 5,000 crore.

• FICCI has said that if FBT must be retained it must be also followed as a deduction like other employee related expenses. Also no separate procedure of paying taxes, returns and appeals should be provided, as it complicates procedure.

·        PSU borrowings

o       The government has decided to prod PSUs into developing investment plans that may materialise in 2006-07. The finance ministry has convened  a meeting  with the chiefs of 16 PSUs this week, to accelerate their investment plans. The meeting is significant, as most PSUs have unutilized reserves and surplus. In the run up to the budget, the ministry has found that as a result the aggregate debt instruments floated by the PSUs in the financial year 2005-06 could be lower than that of  2004-05. Most PSUs, including heavy weights like NTPC, BSNL, BHEL and ONGC, have miniscule debt loads which implies they have comparatively lower loans from banks. This is not positive for the financial sector searching for attractive avenues to lend to. The budget estimate for 2005-06 for bonds and debentures by PSUs is Rs 27,722 crore, but that  includes Rs 8,500 crore for the National Highways Authority of India. This leaves Rs 19,222 crore for 92 other public sector entities.     The slowdown is significant as the government has given a large degree of autonomy to these companies to make their business plans. The meeting is expected to provide the finance ministry a chance to find out if there are still some procedural obstacles that block investment by PSUs. It has been suggested that the government should appoint  a full-time government nominee to the boards of these companies.

·        State finances

• The states have very limited options for losses arising from the rate cut from 4 per cent to 2 per cent and then to 0 per cent in Central Sales Tax (CST). They are reluctant to levy duty on sugar and textiles. They could lay a full VAT rate on central purchases from states. The empowered committee of state finance ministers during their meeting with Finance Minister P Chidambaram of December 16, 2005 have demanded 100 per cent compensation for the rate cut in CST. States could suffer Rs 9,000 to Rs 10,000 crore of losses. The Finance Minister told states to look for other avenues to raise revenue for resources as a compensation. The centre is  considering to provide Rs 6,000 to Rs 7,000 crore for three years for VAT losses. States cannot levy tax on imports. The Finance Minister said that to allow states to levy any tax on imports need constitutional amendment. The centre may rework VAT compensation plan to combine with compensation to be given for losses on CST rate cut.

• The finance ministry is considering whether to allow states to levy a tax on select services. States have been seeking for a larger share of the divisible pool from the service tax revenue which flows to the centre and is then distributed to states in line with the formula worked out by the Finance Commission. All taxes levied by the central government, including service tax, is distributed between the centre and the states with 29.5 per cent of the divisible pool being passed on to the states. The other argument in the favour of the states  levying a tax on some services is that it could provide them a compensation for the revenue loss due to the abolition of central sales tax. To allow states to levy a tax on services would require a constitutional amendment. The government has already carried out a constitutional amendment which provides for collection and appropriation  of service tax by both the centre and the states . However, it is yet to be notified. The central government which at present levy tax on 83 services, mobilized Rs 14,150 crore in 2004-05 through service tax. 

FINANCIAL  MARKET

·        Capital Markets

§         Primary Market

o       Gitanjali Gems Limited is planning an initial public offer aggregating Rs. 1.7 crore equity shares of Rs. 10 each at a price to be determined through book-building process.

·        Secondary Market

o       In wake of the benami demat account scandal involving recent initial public offers, NSDL has made some recommendation to Sebi. These recommendations are Unique Identification number (UIN) for all depository participants associated with account opening, fresh Know-your-customer norms to be undertaken by all DPs if 20 or more accounts are formulated from same address.

o       In a bid to impart confidence to the market players, BSE has worked out a formula in consultation with Sebi in th e case of unusual trading in the shares of Tulip IT Services Ltd. where more than 4 lakh shares were sold at Re 0.25 on January 5. As per the formula worked out, the exchange has decided that all the buy orders below Rs. 96 that got executed against the sale order of 25 paise will be deemed to have been transacted at a price of Rs. 171.15, the average trading price of the day.

o       The stock of PVR limited got listed on NSE at a premium of 20 per cent. The stock was listed at Rs. 270 as against the issue price of Rs. 225.

o       The stock of Punj Lloyd Ltd. was listed on BSE at a 41 per cent premium over its issue price of Rs. 700, while it got listed on NSE at Rs. 956.30.

o       During the week ending January 06, the prevalent bullish sentiments got a boost from the ample liquidity in the market, thereby leading to a rally in the domestic stock market. However, this rally got a bit dampened on January 5 on account of profit booking at record level. On January 03, the BSE sensex, for the first time, closed over the 9,500 level at 9,539.37. Further on the same day the BSE mid –cap index also rose to close at a record high level of 4,562.81.

o       The sensex closed the week at 9,640.29, a gain of 2.58 per cent over its previous week closing level. Likewise, the S & P CNX Nifty also witnessed a gain of 2.73 per cent as it closed at 2914 on January 06. As compared to sensex, the BSE mid –cap and BSE small –cap gained around 4.52 per cent and 3.78 per cent, respectively. Among the sectoral indices of BSE, BANKEX registered the highest gain at 4.91 per cent, followed by BSE METAL at 4.39 per cent.

o       The net FII investment in the domestic market as on January 05 stood Rs. 2,383 crore with purchases worth Rs. 5,954 crore and sales worth Rs. 3,570 crore. Meanwhile, mutual funds were net seller to the extent of Rs. 402 crore as on January 05, with purchase worth Rs. 1,150 crore and sales of Rs. 1,552 crore.

·        Derivatives

o       The total turnover in the NSE’s F & O segment for the week ending January 06 stood at Rs. 1096496 crore.

·        Government Securities Market

§         Primary Market

o       In its foist issuance under the government borrowing programme of calendar year 2006, the RBI has announced a re-issue of 9.39 per cent-2011 paper for an mount of Rs. 6,000 crore and the sales of 7.40 per cent-2035 paper worth Rs. 4,000 crore, through a price-based auction using multiple price method

§         Secondary Market

o       During the week, the call rates have ranged between 5.50 per cent and 6.68 per cent. The daily average outstanding amounts in the LAF (reverse repo) operation conducted by RBI were Rs. 3,030 crore, while RBI received subscription worth Rs. 15,770 crore under its LAF (repo) auction. The weighted average YTM of 8.07 per cent- 2017 paper for the week ending January 6 was 7.1772 per cent as compared to 7.1985 per cent as on December 30,2005.

·        Bond Market

o       Bank of Rajasthan raised Rs. 70 crore through private placement of unsecured, non-convertible, redeemable, sub ordinate bonds, which were in nature of promissory note

·        Foreign Exchange Market

o       As per the weekly statistical supplement of RBI, India ’s foreign exchange reserve has sharply fallen by $6.844 billion during the week ended December 30,2005 to $137.206 billion. The fall is mostly due to the payment on account of India Millennium Deposits.

o       The Financial Markets Department (FMD) of the RBI has taken over the function of conducting the Reserve Bank’s operation in domestic foreign exchange market from January 2,2006. This move is expected to strengthen monetary, debt management and reserve management functions of the RBI by moving towards functional separation in these objectives.

o       For the week ending January 06, the rupee appreciated against dollar by around 39 paise as it closed at 44.66 against the dollar after opening the week at 45.05 per dollar. The six-month forward premia closed at 1.51 per cent as on January 6 as against 1.34 per cent as on December30.

·        Commodities Futures derivatives.

o       The government has reduce the base import prices of crude palm oil to $417 a tonne from $433, while that of crude soya oil has been cut to $497 a tonne from $510 a tonne. For RBD palmolein it has been reduced to $421 per tonne from $445 per tonne.

o       FMC in order to curb the high volatility in the mentha oil futures have sharply tightened the margining and delivery norms for mentha oil futures contract. On January 4, FMC has imposed a penalty of 5 per cent on traders who fail to take or tender delivery of the commodity by the end of January and subsequent contracts. Also, open position will not be permitted to be increased during the last five days prior tot he expiry of the contracts.

o       According to Solvent Extractors’ Association of India, India ’s oatmeal exports rose by 54.6 per cent to 579,700 tonnes in December 2005, compared with the same moth last year. Looking at the world demand and the price competitiveness, the overall export of oil meat from India is expected to maintain the pace of the export during the January-March 2005 period.

o       The spot and futures prices of coffee is expected to pick up in the domestic market and are likely to get good support from the firmness in overseas prices and good export.

INSURANCE

• The Insurance Regulatory and Development Authority (Irda) have given its consent to Reliance General Insurance to open 17 new offices in various cities. The company offers about 75 insurance products, providing end-to-end solutions to both the corporate and retail segment clients, and plans to introduce new value added products in travel, health, home, rural, commercial and liability insurance.

CREDIT RATING

o       Crisil has reaffirmed the ‘AA +/Stable’ and ‘FAAA/Stable’ ratings assigned to Canbank Factors Limited’s Rs. 250 million non-convertible debenture programme and its fixed deposit programme. The ratings continue to reflect the Canara Bank’s majority ownership of the company and its strong market position in the domestic factoring business.

o       Crisil has reaffirmed the ‘P1+’ rating assigned to Ranbaxy Laboratories Limited’s Rs. 1.5 billion commercial paper programme. The rating continues to reflect the company’s leadership position as the largest Indian player in the international generics market, its strong position in the domestic pharmaceutical market and its huge research and development focus.

o       Crisil has also reaffirmed the ‘AAAf’ rating assigned to both SBI Magnum Income Fund as well as SBI Magnum Institutional Income Fund –Savings Plan.

o       Crisil has reaffirmed the ‘P1+’ rating assigned to the Rs. 1 billion short –term debt programme of Nicholas Primal (India) Limited, the rating reflects the company’s strong presence in the domestic formulations market and its high growth prospects led by contract manufacturing and research services.

o       Crisil has reaffirmed the ‘P1+’ rating assigned to the Rs. 400 million commercial papers programme of USV Limited. The rating takes into account the company’s strong position in the domestic market in high growth therapeutic segments of anti-diabetic and cardiovascular.

o       Crisil has upgraded its ratings assigned to Educomp Solutions limited from ‘P2’ to ‘P1’ and removed the ratings from ‘Rating Watch with Positive Implications’. This rating action follows the successful completion of Educomp's Initial Public Offering (IPO) of Rs. 500 million

o       Icra has assigned an ‘A1+’ rating to the Rs. 1.5 billion commercial paper and short –term debt programme of Jindal Steel and Power Limited. The rating takes into account improvement in the company’s business and financial risk profile driven by a change in product mix amid reduction in its gearing levels following robust cash accruals in the last two years.

o       Icra has assigned an ‘A1+’ rating to the Rs. 100 million commercial paper programme of North Delhi Power Limited. The rating factors in stable cash flows from its license area and sustained improvement in the key operating efficiency indicators.

o       Icra has reaffirmed the ‘A1+’ rating assigned to the Rs. 50 million commercial papers and short-term debt programme of Phoenix Yule limited. The rating continues to reflect the company’s strong market position in the domestic conveyor belting business.

o       Icra has assigned an ‘LAA+’ rating to the Rs. 2.5 billion subordinated bond programme of Indian Overseas Bank, the rating takes into account the consistent growth maintained in credit over the past several years, the improvement achieved in its asset quality, and the banks improving core profitability

o        Continuing with its innovative service of Performance and Credit Rating of Small Scale Enterprises (SSEs) in India , Icra has assigned an ‘SE 3B’ rating to General Auto Electric Corporation (GAEC). The rating indicates moderate performance capability and moderate financial strength. The entity has moderate prospects of performance and moderate capacity to meet its financial obligations. The rating takes into account the high risk associated with GAEC deriving most of its revenues from the Indian Railways

o       Fitch Ratings has assigned an ‘AA- ( Ind ) (SO)’ to the Rs. 3 billion long-term bond programme of Karnataka State Financial Corporation (KSFC). The KSFC’s Rs. 3 billion unsecured bond issue will refinance the redemption of existing high-cost bonds. The repayment of principal and interest in respect of this bond issue is unconditionally and irrevocably guaranteed by the government of Karnataka (GoK). Consequently, the rating is based almost entirely on the credit profile of GoK

CORPORATE SECTOR

• For December 2005, the domestic sales of Maruti Udyog have grown up by 16.4 per cent to 43,251 units.

• Hero Honda and Bajaj Auto have reported lacklustre growth in their motorcycle sales during December 2005. Bajaj Auto’s sales have reported merely 3 per cent year-on-year rise to 1,48,263 units in December 2005, while hero Honda’s sales have risen by 6.2 per cent to 2,30,751 units.

• Tata Motors, in the month of December 2005, have sold 18,730 units in the commercial vehicles segment by posting a 1.4 per cent rise over the same month previous year. Exports of cars and commercial vehicles were down by a marginal 0.7 per cent during December 2005 at 3831 vehicles.

• Tata Steel has reported a 11 per cent increase in sales at 1.12 million tonne for the third quarter ended (December) 2005 from the corresponding period previous year. Hot metal production has gone up by 13 per cent at 1.25 million tonne and that of crude steel has risen by 7 per cent at 1.13 million tonne. The production of saleable steel in the third quarter has registered a 9 per cent increase at 1.14 million tonne.

• Bharat Heavy Electricals Limited has received Rs 800 crore order for setting up the ninth and tenth units of National Aluminium Company Limited’s 960-mega watt captive power plant, located at Angul in Dhenkanal district of Orissa.

• RPG Transmission has secured orders worth Rs 73 crore from India and Nigeria . Power Grid Corporation of India Limited has also placed an order of Rs 53 crore for supply and construction of 400 kV double circuit transmission line from Kudankulam in Kerala to Tirunelveli in Tamil Nadu.

• Engineering firm Mazda has received export order of Rs 2 Crore from New Jersey based Croll Reynolds.

• Machino Plastic has received Rs 250 crore order from Maruti to supply bumpers and dashboards for Swift.

• ABB India has received Rs 430 crore turnkey order from Oil and Natural Gas Corporation (ONGC) under which it will provide an enterprise wide supervisory control and data acquisition system for ONGC’s production and drilling facilities.

• Alstom Projects India Limited has got Rs 208 crore order for supply of boiler turbine package on a turnkey basis by Bokaro Power Supply Company. Bokaro is augmenting its existing 330-mega watt power plant for process steam as well as power generation.

• Marico, the healthcare and cosmetic products company, has acquired a herbal bath soap brand, Manjal, from Oriental Extractions for an undisclosed amount.

• Mahindra and Mahindra has acquired a 98.6 per cent shares in the UK based automotive forging maker Stokes Group for an undisclosed amount.

• Pidilite International Pte Limited, Singapore and Pidilite Middle East Limited, Dubai, wholly-owned subsidiary companies of Pidilite Industries, India have jointly incorporated a company namely Pidilite Speciality Chemicals Bangladesh Private Limited in Dhaka, Bangladesh for manufacturing, trading and marketing activities.

• JB Chemicals has entered into an agreement with Taro Pharma and its affiliate for joint development of products for the US .

• Reliance Industries Limited has hiked prices of some of its products. The price of partially oriented yarn has been increased by Rs 0.79 to Rs 64.86 per kilogram from Rs 64.07. Prices of fibre intermediary’s purified terephthalicacid and mono ethylene glycol have been increased Rs 0.10 each to Rs 43.90 and Rs 44.80, respectively. Polyethylene and polypropylene prices have been hiked by Rs 2 each to Rs 57.42 and Rs 59 respectively.

o       Hinduja Group has signed a memorandum of understanding with ONGC for joint collaboration in the oil and gas sector for India and overseas projects.

• The Reliance Capital board have approved a 5:100 swap ratio for merger of Reliance Capital Ventures (RCV) with itself. It means shareholders of RCV will get 5 shares of Reliance Capital for every 100 shares hel

LABOUR

o       The National Rural Employment Guarantee Scheme (NREGS) of the government, which has proposed to provide 100 days of employment to every rural household per year, will be launched on February 2, 2006 initially in 200 districts. The Prime Minister will accept application forms from job aspirants in rural areas. The chief ministers of various states have also planned to launch the scheme simultaneously in their states on the same day on similar lines. To work out the programme, a sum of Rs 10,000 crore will be needed for the phase for the remaining months of the current financial year. While Rs 5,500 crore will come from the Sampoorna Gramin Rozgar Yojana fund, Rs 4,500 crore will be obtained from the Food-for-Work scheme.

o       In a view of labour reforms, the panel of Planning Commission has suggested few recommendations like third party scrutiny, self-certification and joint inspection to end the existing ‘inspector raj’. The Committee on reducing ‘inspector raj’ has suggested that ISO 14001 certified enterprises should be granted relaxation from regulatory inspections for environmental laws. It has suggested to develop national standards in consultation with Quality Council of India (QCI) to ascertain compliance of occupational health and safety and labour laws through third party inspection. The Plan Panel has recommended introducing a scheme of self-certification which will be liable for inspection only once in five years. Similarly, it has suggested joint inspections by different authorities, which should be carried once in a year. The Committee also emphasised on quality of inspections and stressed on the need for training and capacity building of inspecting officials.    

EXTERNAL SECTOR

o       According to Ficci, strengthening of infrastructure and tariff reduction in a stipulated time frame could see trade among Saarc countries grow from around $7 billion to $14 billion by 2010.

o       Indian Expo Centre and Mart, to be inaugurated this month, is being projected as a hub of handicraft and other products like silk, handloom, jute and carpets. The infrastructure of IEC&M has been created within 30 months with an investment of about Rs 400 crore.

• The FM radio sector is expected to get foreign investments to the tune of Rs 500 crore in the next 12 to 18 months.

• The government has approved 44 foreign direct investment proposals totaling Rs 741 crore, including Rs 457 crore investment by Bycell Holding AG in cellular telephone services.

o       Against the expectation of 25-30 per cent growth, India ’s apparel and clothing exports have registered only 15 per cent increase in their exports in the first year of dismantling of quotas in the world textile trade. The main reason for the sluggish growth in the exports, apart from lack of adequate capacity with the manufacturers, was attributed to low duty drawback rates. In addition to this exporters have to pay several central and state taxes, which are making the exports uncompetitive.

INFORMATION  TECHNOLOGY

• India may be the world leader in Information Technology (IT) but it trails in a big way when it comes to patents in the IT sector. While the top 10 patents holders across the world are IT companies, in India no IT firms has patents. The list of top 10 patents holders in India compromises only pharmaceutical and biotech companies. In India , the Council of Scientific and Industrial Research (CSIR) hold 184 patents, followed by Ranbaxy (56) and Dr Reddy’s Laboratories (19). Worldwide, though the highest numbers of patents are hold by IBM (3248) followed by Matsushita Electric industrial company (1934) and Canon (1805)

TELECOM

• Global networking major Cisco Systems has shipped 1 lakh internet protocol (IP) phones to India till December 2005, making it one of the leaders in the Indian IP telephony market. In the period between October 2001 and October 2004, the networking major had shipped to the country a total of 50,000 IP phones. Thus, in just one year, it shipped another 50,000 units to take the total tally to 1 lakh phones. Cisco’s leadership in the Indian IP telephony space has been driven by the large-scale adoption of its IP-PBX solutions, especially by Indian IT and IT-enabled service firms. Traditional sectors such as banking and finance and manufacturing has also contributed to the growth in IP telephony in the country.

o       India’s second largest mobile operator Reliance Infocomm has announced the country’s cheapest mobile rate of Re 1 per minute for its pre-paid customers for all calls made anywhere in India, across networks. Currently, local call tariffs are about 80 paise a minute and STD calls to different operators vary between Rs.2.40 and Rs.2.99. India already offers the world’s cheapest mobile rates and now Reliance’s latest move is expected to trigger another wave of tariff reductions by operators across the country.

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

LIST OF WEEKLY THEMES

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