Current Economic Statistics and Review For the Week 
Ended February 25, 2006 (8^th Weekly Report of 2006)

Theme of the week:

Irregularities in IPO Processes
Modus Operandi and Regulatory Reforms*

Introduction

            Irregularities in the financial markets have been an universal phenomenon; but what has been important is the rate of unearthing them and addressing them before they pose systemic risks. With the adoption of state of art technology by the regulators and exchanges, there has been significant improvement in the surveillance and regulation of the financial markets. Securities and Exchange Board of India’s (SEBI) action in identifying the malfeasant acts is commendable. Yet, there are systemic gaps, which are being exploited in a system that claims to be world class; it is against such loopholes that the regulators have to guard themselves.

            The scams in the Indian financial markets seem to have followed a somewhat similar pattern, that is, they are brewing at times when the markets are bullish; they also seem to stimulate buoyancy. For instance, the Harshad Mehta (1992) and Ketan Parikh (2001) episodes have happened when the markets were bullish. Even the current IPO scam has happened when the primary as well as secondary market has been buoyant wherein there have been huge mobilisations of funds. However, the earlier two scams were related to price manipulations in the secondary market and the present one is probably for the first time when the primary market is being targeted for making quick money, though the potency for quick money lies in rapid increases in secondary market prices.

           The IPO scam has revealed the lacunae existing not only in the book building process but also in the entire mechanism involving the intermediaries, namely, the registrar and transfer agents (R&Ts) of the issues, depositories, depository participants (DPs), merchant bankers and banks.

The buoyancy in the primary market

Indian equity markets have been on an upturn and are being considered to be among the most attractive markets in the world. The year 2005 has been a landmark in the history of the BSE sensex, wherein the sensex has touched a new high of 10,000 mark on the back of huge FII inflows and robust corporate performance. With the price-earning ratio for the sensex companies remaining around 18.5, FIIs consider great potential for their investments in Indian equities.

Indian companies, big and small, have mobilised capital to fund their growth plans. Given the limited base of equity investments in India and the relative fall in yields in risk-free avenues of investments like bank deposits, retail investors plunge into the market through the mutual funds and IPO route to avail of high returns. The primary market has been buoyant with huge amounts being mobilised with the number of issuers increasing manifold as shown in Table 1.

Public issues have grown, both in number and value. In the year 2004-05 around Rs 28,256 crore were mobilised via public issues as against Rs 23,272 crore in the year 2003-04. According to Sebi, during the year 2004-05, over    Rs 13,000 crore were mobilised through IPOs and around Rs 3,616 were raised through rights issues.

Irregularities in the IPO process

           It was in December 2005, that the Sebi unearthed the irregularities in the IPO process of Yes Bank and IDFC which caused a red alert in the financial system as it involved almost all the intermediaries in the entire IPO process: banks, depositories, merchant bankers, R&T agents and DPs. It is worth mentioning that the Union finance minister has said that it poses systemic risk to the financial system. It appears that the irregularities have been perpetrated through collusion of the intermediaries, poor surveillance of the regulators and failing in accountability at various levels.

Modus Operandi

The modus operandi in both the IPOs, Yes Bank and IDFC has been identical: opening a large number of demat and bank accounts in various false names to route applications for IPOs to circumvent Sebi’s guidelines on proportionate allotment of IPOs.

Three Gujarat-based traders – Dhiren Vora, H Nyalchand and Rajan Dapki – are said to have mastermind the racket of using thousands of benami demat accounts to corner shares allotted in the retail segment of IPO. Roopalben Nareshbhai Panchal and her associates opened thousand of banks and demat accounts using other people’s name and also by creating fake identities. Then they applied in IPOs in the retail category, and put in money arranged by Ms. Panchal through financiers. After receiving shares in the demat accounts on allotment, they immediately transferred them to Panchal in off-market transactions. She, on her part, transferred these shares again to demat account allegedly operated by the financiers. In short, Ms. Panchal’s demat accounts were used as a funnel to collect shares received under numerous fictitious and benami accounts. The financiers, in turn, sold most of these shares on the first day of listing, making a windfall profit from the difference between the issue price and the listing price. Sebi condemned it by saying,  “What is reprehensible is the unjust enrichment of a few masquerading in the retail category at the cost of genuine investors." 

Chronology of events

On December 15, 2005, Sebi cracked down on irregularity in the allotment of Yes Bank IPO, wherein benami accounts were used and it was found that Roopalben Nareshbhai Panchal had 6,315 demat accounts in her name. According to Sebi’s preliminiary estimates, these entities could have made a profit of Rs 1.7 crore in a period of less than two weeks by selling the Yes Bank shares within days of listing. Sebi further probed the registrar to the issues, Karvy Computershares Ltd and the lead managers, DSP Merrill Lynch and Enam Financials, for weeding out the benami applications. Immediately Sebi asked 13 entities to refrain from dealing in Yes Bank shares. The Sebi whole-time member, G Anantharaman in his order said “It is a matter of concern that NSDL, which is a self-regulatory organisation, within whose domain Karvy – DP falls, could not detect the apparently systemic deficiencies in Karvy DP”. Simultaneously, Sebi asked the Reserve Bank of India (RBI) to examine the role of Bharat Overseas Bank and Vijaya Bank in opening bank accounts of the benami entities and funding their IPO applications.     

On January 5, 2005, in the stock of Tulip IT Services Ltd unusual trades were carried out on BSE, wherein around 10 lakh shares were traded below the issue price of Rs 120 and around 4 lakh shares were traded at meagre Re 0.25 while the balance were traded at Rs 100 per share. Therefore, Sebi asked both the leading stock exchanges – NSE and BSE – to impose a circuit filter of 50 per cent on the first day of listing of the IPOs. Hitherto, both stock exchanges were following the practice of not imposing any circuit filter on new stocks on the first day of trading as the intention behind the move was to facilitate price discovery of such stocks without any intervention.

Following the YES Bank IPO scam, On January 12, 2006, Sebi unearthed yet another multiple demat account scam of a much larger proportion than the YES Bank. This time it involved the IPO of the Infrastructure Development Finance Corporation (IDFC) in which Sebi discovered 45,000 fictitious demat accounts floated by 39 entities to corner shares meant for small investors. Of the total 45,000 fake accounts, Sebi suspects that 14,807 accounts belong to Rooplalben Panchal, the main accused in YES Bank, whereas the remaining fictitious accounts belonged to Sugandh Estates, Purshottam Budhwani and Manojdev Seksaria from Mumbai. Roopalben Panchal received 39,43,184 IDFC shares from 14,807 CDSL demat accounts and 12,257 NSDL demat accounts through off-market transactions three days before they were listed on August 11, 2005. In the IDFC issue, the scamsters were able to get allotment of a stunning 8 per cent of the shares in the retail category in this way.

On February 22, 2006, the Bank Securities and Fraud Cell of the Central Bureau of Investigation (CBI), found that Roopalben Panchal and associates made a profit of Rs 32 crore in the IPO scam. According to CBI, the searches, which were conducted at 27 places in Delhi , Mumbai, Ahmedabad and Hyderabad , revealed that Ms Panchal was funded to the tune of Rs 30 crore by a financier to invest in the two IPOs. The searches also yielded about Rs 1 crore in cash and substantial investment in other assets. The CBI investigation team has found out the unique modus operandi of opening multiple demat accounts. Ms Panchal advertised in local dailies in Ahemdabad that people could get themselves photographed and get free copies of their photos. She then used copies of these photos to open thousands of fictitious accounts with banks and DPs.

Banks involvement in the IPO scam

The RBI found that Indian Overseas Bank’s Ahmedabad branch added 16,000 names to a single account without any verification. No one from the bank’s senior management even had a hint of it. Similarly, Standard Chartered Bank allowed about 120 cheque withdrawals from the same account on the same day. The bank’s internal control requirements stipulate a daily ceiling of 10-15 cheques for withdrawal per account. Citibank is said to have facilitated irregular transactions by issuing an abnormal number of cheques. It issued 16,000 cheques to Roopalben Panchal within a few days of opening an account. These transactions have come to light after RBI conducted a preliminary enquiry based on Sebi’s investigations which found that several entities have opened thousands of current and saving accounts with banks and demat accounts with DPs in benami and fictitious names to corner shares in the retail category of various IPOs.

Regulator’s Actions

Considering the serious irregularities in the IPO process, Sebi has taken prompt action to tackle the issue.

SEBI’s action plan included:

(i)                  Probe Karvy, which actively “colluded” with benami demat account holders;

(ii)                Inspect merchant bankers DSP Merill Lynch, Kotak Mahindra Capital and SBI Capital;

(iii)               Request RBI to examine the role of Bharat Overseas Bank, HDFC Bank, Indian Overseas Bank, ING Vysya Bank and Vijaya Bank;

(iv)              Ask stock exchanges to examine the role and involvement of brokers;

(v)                Advise NSDL and CSDL to set up a surveillance cell to detect unusual flows of securities in accounts; and

(vi)              Ban Depository Participants, Karvy and Pratik from opening new accounts till they obtain a clearance.

Action taken by Depository

NSDL has asked DPs to submit lists of customers having more than 20 accounts with common addresses. According to the NSDL database there were about 1,000 instances of more than 20 demat accounts having the same address.  NSDL has asked its participants to identify persons linked to these fake accounts or freeze them if those backing such accounts cannot be identified. 

Action taken by the RBI

The RBI has imposed fines ranging from Rs 5 lakh to Rs 20 lakh on seven banks for their role in the recent manipulation of the (IPO) allotment process. The fines are as follows:

The RBI has also prohibited banks from crediting account-payee cheques to the account of any person other than the payee named in the cheque. The RBI has accused the seven banks of violating its regulations on customer identification in opening of savings, current and demat accounts, breaching prudent banking practices and facilitating the misuse of IPO finance to ineligible borrowers. The fine was imposed in the exercise of powers vested with the RBI under the provisions of Section 47 A (1) (b) of the Banking Regulation Act, 1949.  The decision to impose penalty was taken after giving the defaulting banks an opportunity to make oral submissions on January 20 and 21, 2006. These banks will have to publish the penalties imposed by the central bank in their 2005-06 annual report.  They will also be required to make this public when they enter the capital market in future.

Sebi’s Recent Notifications (Post-IPO Scam):

1)      With the IPO scam tending to shatter investor confidence, Sebi has asked all market intermediaries to put in place a proper policy framework on anti-money laundering measures within one month. The Prevention of Money Laundering Act, 2002 (PMLA) has been brought into force with effect from July 1, 2005. The Ministry of Finance has modified necessary notifications and rules under the Act in the Gazette. As per the provisions of the Act, every banking company or financial institution and market intermediaries will have to maintain a record of all the transactions, the nature and value of which has been prescribed in the rules notified under the PMLA. Such transactions include:

o       All cash transactions of the value of more than Rs 10 lakh or its equivalent in foreign currency

o       All series of cash transactions integrally connected to each other which have been valued below Rs 10 lakh or its equivalent in foreign currency where such series of transactions take place within one calendar month

o       All suspicious transactions whether or not made in cash.

2)      In addition, Sebi has instructed all registered merchant bankers, R&T agents and bankers to refund the IPO allotment money through electronic clearance system (ECS) to the customers residing in 15 centres. Sebi said in a statement that the applicants residing in 15 centres - Ahmedabad, Bangalore, Bhubaneshwar, Kolkata, Chandigarh, Chennai, Guwahati, Hyderabad, Jaipur, Kanpur, Mumbai, Nagpur, New Delhi, Patna and Thiruvananthapuram, will get refund through ECS. The clearing houses for ECS are managed by RBI. In other centers, refunds will be despatched through registered or ordinary post, as it is the current practice. In addition to this, applicants who are disclosed to be eligible for direct credit or for Real Time Gross Settlement (RTGS) will get refunds through the said routes. The regulator has made these changes by making Amendments to Sebi (Disclosure and Investors Protection) Guidelines, 2000.

3)      As part of its clean up exercise to check the abuse of the primary market system, Sebi has directed the depositories – NSDL and CSDL – to activate the International Securities Identification Number (ISINs) only on the day of listing of the newly listed IPO. This means that the shares in the depository account cannot be transferred before the day of listing.

4)      Sebi board has granted in principle approval for introduction of optional “grading” of public issues by unlisted companies by credit rating agencies registered with Sebi. While IPO grading would not be mandatory, it would be solely at the option of the issuer company. SEBI will not certify the assessment made by the grading agency. The grading would be a one-time exercise and would only focus on assisting the investor, particularly retail individual investors, in taking an informed investment decision. The cost of IPO grading can be met by stock exchanges or out of the corpus of Investor Education and Protection Fund (IEPF).

5)      The Sebi board has decided to resume fresh registrations for obtaining Unique Identification Number (UIN) under Sebi (Central Database of Market Participants) Regulations, 2003 (MAPIN), after considering the recommendations of the Committee set up by the regulator to examine the issues related to the identification numbers for market participation. The registration process will be resumed in a phased manner. To begin with, the cutoff limit for obtaining UIN with biometric impressions for natural persons has been raised from the existing limit of trade order value of Rs 1 lakh to Rs 5 lakh or more. The limit will be reduced progressively. For trade order value of less than Rs 5 lakh, option will be available to investors to obtain either PAN number of Income Tax Department or UIN obtained under MAPIN. However, investors in mutual funds would be exempted from the requirement of obtaining UIN.

Issues

One of the major capital market reforms of the early 1990s was the abolition of the institution of Controller of Capital Issues. Consequently share-issuing companies were allowed to price their issues in line with their anticipated market prices. Free market pricing was supposed to align market strength and demand for the new issues with the intrinsic worth and do away with the pre-issue premium. With the introduction of book-building process, IPO mobilisation now is done mainly by a handful of merchant bankers, their broking arms and a few brokers attached to them. Associated with these are a number of agents who assist in mobilising the issue targets. These agents do not follow Know-Your-Client (KYC) norms; hence, the due diligence required in introducing clients to the system is often not exercised. With the presence of anti-money laundering law, it will now be obligatory for Sebi to specify KYC norms for such transactions.

The new Sebi regime has been proactive in unearthing the scam and taking steps to address them, which is a welcome development; yet, it remains a fact that these irregularities could have been easily nipped in the bud had Sebi accepted the recommendations of the J R Verma Report (2001) titled “ Report of the Working Group on Multiple Applications”. The group had then pointed out that while a majority of multiple applications were being put in to better the chances of allotment, some were also put in for genuine reasons. It suggested that investors be allowed to make multiple applications, but on the condition that they disclose this in every application that they make. These multiple applications by any one investor then were proposed to be clubbed and a different allotment mechanism for such applications was mooted. The group had recommended that registrars cumulate applications with the same name and age, check for same PAN numbers, addresses, signatures, DP-ID and client ID numbers. These checks, felt the group, would suffice to weed out non-transparent multiple accounts. The group also suggested ways to deal with suspect applications and alternate sources of application forms.

            The Verma group recommendations were objective. Yet it is still unclear as to why Sebi did not enforce these measures, specifically the ones relating to identifying multiple applications despite using sophisticated databases that run complex queries on various parameters. At least the registrars and merchant bankers dealing with large issues should be equipped to quickly create a database of applicants and then use the method suggested by this working group to find out those making multiple applications.

In June 2005, Dr L C Gupta’s Survey of Household Investors suggested that the overall effect of the demat system has not been to attract a greater number of domestic retail investors into share-ownership but the opposite. It has thus, in as early as in June 2005, the committee said that the demat system has been very attractive to speculators and frequent traders.

When subverting of the Yes Bank IPO allotment was unearthed, the RBI governor said that it was not a systemic issue but a localised fraud that would be dealt with severely. After the IDFC revelations, the Finance Minister said that the government would not allow any misuse of the public offer route and would take stringent action against the culprits. He also claimed it was “systemic deficiencies” which created the problem. Sebi has asked the depositories to step up their surveillance process and has said that any system that cannot detect multiple demat accounts with common addresses is unacceptable. A well-known columnist known to be an authority on capital market operations and regulations, Ms. Sucheta Dalal, says that the issue may not be one of surveillance but of system design and that depositories may have to redesign their software. The problem is considered to be systemic as the banks have facilitated the opening of thousands of demat accounts by the same person on the same day with Karvy, the DP that accounted for 95 per cent of the dubious accounts in IDFC case. As Sebi says, “Banks have also played their part by opening bank accounts and providing a pro-tempore loan to these fictitious entities with the objective of earning interest and other charges.” Even the banking system has not followed effective checks and balances wherein issue of 16,000 cheques on a single day has not alerted the officials in a foreign bank.

Except banks, all other intermediaries are under the regulatory jurisdiction of Sebi. Even in the case of banks, Sebi guidelines apply in so far as their operations with depository and associated activities. It has been found that all intermediaries have failed to adhere to the regulations and in fact, violated some of its key provisions as such as KYC guidelines framed for DPs and banks while opening the accounts.

Possible solutions

Some financial market analysts have suggested alternative mechanism to address these issues. Shri Prithvi Haldea, Managing Director, Prime Database, who has been associated with a number of Sebi working groups and who has been a member of the Sebi board, has suggested that there is need to expand the MAPIN data-base by using Dedupe software (without biometric system) to include all investors. This ID should compulsorily require PAN number irrespective of the category of investors. Currently, small investors who bid below Rs 50,000 are not required to provide details regarding PAN; they should henceforth also be made to provide the PAN and bank details.  Ms. Sucheta Dalal further adds that the PAN number provided should match with that provided by the income tax department’s PAN database for electronic evidences. She further says that the use of IT technology has made the system fast and efficient as well as enabled clear audit trails. However it does not increase transparency without proper design and the right algorithm to match irregular trades and shady activities. Prof. Shri Samir Barua, Professor, IIM-Ahmedabad, has suggested that if proportionate allotment (every applicant is allotted one-tenth the number of share applied for) were made, then there would be no incentive for putting in multiple applications. Dr. Ajay Shah, until recently a consultant to the finance minister and now a faculty at the IGIDR Mumbai, says that the core problem lies in a pricing distortion that has been created by Sebi. He says that there is no case for special allocation for individual investors. The ultimate aim of a good IPO mechanism is that the price discovery in the IPO auctions should be practically be the same as the price at the first listing. If an IPO takes place on Friday, and trading starts next Monday, then on average, the Monday closing price should be the same as the IPO price. As a result, the special profit in buying at the IPO, which is reaped by the individual investors who get shares allotted is not there and those who didn’t obtain shares in auction can buy them on Monday in the secondary market essentially at the same price.

The Sebi is already considering starting of MAPIN, which will be effective, and this would further be made effective with the use of PAN number for all investors. Technology can be redefined and improved upon, but there is a need for accountability and alertness at all levels which will prove to be effective in unearthing the irregularities While proportionate system will ensure that the each investor gets an allotment, but if the investors want to corner a bigger size of the issue, he would still be interested in putting multiple bids. The pricing of IPO has been an issue since the closing down of CCI; it would be beneficial if the issues are not overpriced, but then in case of over-subscription issues where a large section of investors put in buy orders once the share is listed this will automatically lead to rise in the price.  

Recommendations of NSDL

NSDL has suggested a review and tightening of the KYC norms being followed by depository participants DPs. To clean up demat operations in the securities market, NSDL is also keen to ensure that sub-brokers of broker DPs are not involved in the process of opening new demat accounts. 

Conclusion

The very fact that Sebi allows investors to open multiple accounts with same DP as well as with different DPs, thus having multiple demat accounts is not illegal and the regulation is silent on how many demat accounts an entity can maintain. It is also not clear as to why Sebi wants to check instances with more than 20 demat accounts. Also, it is not clear why should one have more than one demat account with one DP as well as with different DPs (except in case of joint applicants). In fact, having multiple accounts makes mockery of the retail investors as a single individual bids for less than Rs 1 lakh through 20 demat accounts; would be still be considered as a retail investor, while bidding for awesome amount. For the purpose of price discovery, a single demat account should be sufficient and also this will help retain genuine small investors in one category.

There is need for the Sebi to clarify the need for allowing more than one demat accounts and the economic purpose behind it. What are the benefits the multiple demat accounts helps investors is not clear. Does it anyway helps better retail participation in equity holdings? Interestingly, the suggestions from various financial experts revolve around ways to manage the maze of multiple accounts through various means, but is there a need to create yet another maze of surveillance when the issue can be addressed by simply allowing one demat account for a single individual and joint account. The loss, if at all, of some miniscule retail subscription should be counted against the opening up of Pandora’s box when multiple demat accounts are permitted.

The Verma committee said that the applicants have the tendency to apply multiple applications due to various reasons such as chances for better allotment, to avoid making a single application for bulk quantity of shares involving high value, to avoid furnishing PAN number etc. Due to these multiple applicants, the proportions of allotment to the other common investors are affected. Notwithstanding the above, it was pointed out that in the past few years, since the introduction of the system of proportionate allotment, there has been a noticeable reduction in the number of multiple applications in primary issues. Thus, although the problem persists, its magnitude had reduced. Further, it was pointed out that while majority of the investors put in multiple applications in issues to better their chances for allotment, there may be genuine investors who submit multiple applications. For instance, a person having 3 children may wish to hold shares jointly with each of his children and thus might submit 3 applications with him being the first applicant in each application. As per the existing provision, these multiple applications are liable for rejection. However, the group felt there was a case for genuine application such as the ones described above, to be accepted in an issue and felt that there should be a provision enabling such genuine multiple applications to be considered.

The balance of consideration suggests that the most fair and realistic method should be as follows:

(i)           No single individual should be allowed to open multiple demat accounts either with the same DP or with more than one DP;

(ii)           Applicants applying for shares or in any way operating in the share market activity should posses a PAN number irrespective of their source of earnings – even in the case of those involved in agricultural activities;

(iii)               The criteria for judging whether applicants are multiple subscriptions or not should be based on PAN numbers. In other words, if there are joint names with two PAN numbers and if one of the names appears in another application only then that the two applicants would be considered as separate applications. On the other hand, if any applicant submit application in his/her name or also in joint names without the other possessing the PAN number, all such applications need to be clubbed together as one application.

_______________________

* [This note is prepared by Ms. Piyusha D. Hukeri and Mr. Bipin K. Deokar.

Highlights of  Current Economic Scene

AGRICULTURE     

The Central government has released 1.5 lakh tonne wheat under open market sale for the month of February 2006, in addition to an equal quantity released earlier in the same month to curtail the rise in the wholesale prices. The additional released quantum includes 20,000 tonne for Delhi and Punjab, 15,000 tonne for Haryana, 10,000 tonne each for Tamil Nadu, West Bengal, Karnataka and Maharashtra, 5,000 tonne each for Uttar Pradesh, Kashmir, Madhya Pradesh, Kerala, Bihar, Orissa , Assam , Rajasthan, Gujarat and Andhra Pradesh. While allocation of wheat under the open market sale scheme has been increased, the government has also frozen the central issue prices under the targeted public distribution system (TPDs) in order to encourage more off-take.

A three-day nationwide strike (which had begun from February 13, 2006) by the seafood exporters has adversely affected nearly 400 seafood processing units and allied units like ice manufacturing causing the daily loss of Rs 25 crore. The strike had been called in the protest against the Central’s recent decision to cover DEPB (duty entitlement passbook) income on exports turnover above    Rs 10 crore into taxable income. Implementation of this decision would cause the industry to bare financial burden of Rs 400 crore, which would almost ruin the aquaculture sector.

Following the rising incidences of suicides by the onion growers due to dreadfully lower onion prices (Rs 2 per kg) in the state, the government of Maharashtra has taken a decision to allow exports of 4 lakh metric tonnes during the rabi season 2005-06 in order to avoid further decline in the prices. The state government has also decided to provide a subsidy of Rs 10,000 per container to farmers’ cooperatives, which export onions.

The Finance ministry has reiterated that the benchmark import prices for crude and soybean oils have been raised to match the world rates. The crude palm oil price has been increased by $14 a metric tonne to $426, and that of crude soybean oil by $17 a metric tonne to $501. The import tariff for RBD palm oil has been raised by $14, to $441 from $ 427 and other palm oil to $434 from $ 420. The tariff for RBD palmolein has been hiked to $451 from $437, crude palmolein to $448 from $434 and other palmolein to $450 from $436.

According to Solvent Extractors' Association of India, imports of the edible oil has declined by 18.7 per cent to 7,76,894 tonnes during the first three months, November-January, of the oil year 2005-06, compared to the figure year earlier. On the other hand, the total non-edible oil imports during the same period has surged by whopping 155 per cent, at 1,47,320 tonnes compared with 57,672 tonnes imported a year ago. India is the second largest importer of edible oil, fulfilling 40 per cent of its annual requirement of 11 million tonnes of edible oil through imports.

According to Textiles and Apparels (OTEXA), USA , textile exports from India to the US has grown by 27 per cent to $4.6 billion compared to the export figures a year ago, following China , which has recorded the growth of 54 per cent to $22.4 billion during the same period. The dismantling of quotas have given a boost to Indian textile and apparel industry, as the growth in 2005 has been much higher than that in 2004 by 13 per cent in dollar terms. Indian textile firms have also sold much higher volumes in 2005 at 2,335 million square metres, a rise of 22 per cent y-o-y, compared with an increase of just 15 per cent y-o-y in 2004. Indian firms have exported apparels worth $2.97 billion in 2005 an increase of over 34 per cent, compared with a growth of just 10.7 per cent y-o-y in 2004. However, non-apparels exports have increased at a lower rate of 15.8 per cent y-o-y in 2005, compared with 17 per cent y-o-y in 2004 in value terms.

According to the estimates of Fertilisers Association of India (FAI), the total fertiliser production between April-December 2005 has registered a marginal increase of 0.2 per cent despite a 1.5 per cent fall in output of phosphatic fertilisers. Nitrogenous fertilisers have rgistered an output growth of 0.8 per cent during this period. The overall capacity utilisation has stood at 94.1 per cent for nitrogenous fertilisers and 74.7 per cent for phosphatic fertilisers in the first nine months of the 2005-06 financial year. Capacity utilisation has been 93.2 per cent and 74.2 per cent for the nitrogenous and phosphatic fertilisers, respectively, during the same period in fiscal year 2004-05.

Out of 8 agriculture markets to be set up in the country, 3 would be established in Maharashtra at Nagpur , Nasik and Mumbai. These markets would be set up only in those states, which have amended their Agricultural Produce Market Committee (APMC) Acts to facilitate private players role in setting up these markets. So far only one private market has come up in the country at Bangalore that trades in fruits and vegetables. The proposed markets will be dealing in all agricultural commodities. The state would provide basic facilities such as land, water, electricity and Centre would provide financial assistance of Rs 200-250 crore for infrastructural facilities such as warehouses, cold storages, etc.

In order to overcome the certification hurdles faced by the country’s organic farm produce in the world markets, the Agricultural and Processed Food Products Export Development Authority (APEDA) has devised a certification procedure, acceptable internationally, for fruits and vegetables grown organically. This development is a major breakthrough for Indian organic farmers, as it will bring down the cost of their produce substantially making them competitive in the international market.

The working group on animal husbandry, dairying and fisheries under the National Development Council, has recommended minimum support price (MSP) for the coarse grains - ragi, jowar and bajra - on the lines of other agriculture produce. Some other suggestions of the committee include establishing a comprehensive livestock breeding policy at national level to multiply the bovine population in the country, setting up of Fodder Corporation of India to avoid any shortage, introducing a suitable insurance scheme to sheep and goat farming along with the agriculture operations.

INDUSTRY

Index of Industrial Production (IIP)

The growth in IIP has slowed down to 5 per cent in December 2005 from 8.9 per cent in the same month of the previous year. For the cumulative period of April-December 2005 IIP has grown at 7.8 per cent as compared to 8.6 per cent during the comparative period a year ago. This is largely attributed to decelerated growth in the manufacturing sector from 9.8 per cent in December 2004 to 5.9 per cent in December 2005. The mining and electricity sectors have also continued their sluggish growth in December 2005 – 0.4 per cent and 4.8 per cent respectively – as compared to 5.1 per cent and 6.4 per cent in December 2004.

The capital goods industry has grown by a commendable 19.7 per cent in December 2005 as compared to 14.6 per cent a year ago while consumer goods industry has also accelerated commendably at 12.3 per cent in the same period as compared to 6.5 per cent last year. 

INFRASTRUCTURE

Petroleum, Petroleum Products and Natural Gas

The Rangarajan Committee has prepared a comprehensive blueprint for reducing the escalating under-recoveries of oil marketing companies (OMCs), which is estimated at a whopping Rs 39000 crore. The roadmap includes:

·        a hike in petrol price by Re 1 a litre and in that of diesel by Rs 2 a litre, resulting in a yield of Rs 6000-7000 crore for OMCs.

·        an immediate hike of Rs 75 per LPG cylinder, effective from April 1, 2006 and thereafter a quarterly increase of Rs 25 a cylinder from July 1; and kerosene prices to be segregated for above and below poverty line families – subsidies to be continued for the latter while the former consumers pay Rs 1.5 a litre more. These LPG and kerosene prices are expected to reduce the subsidy bill by around Rs 13500 crore.

·        an increase in cess on crude oil by domestic producers ONGC and OIL from Rs 1800 a tonne to as much as Rs 5000 a tonne, which could raise as much as Rs 13000 crore or the government.

·        a shift to a trade parity regime with import and export parity ratio at 80:20

·        a paring down of custom duties on petroleum products to 7.5 per cent and retaining it a t 5 per cent for crude oil.

Coal

The Energy Coordination Committee has directed the coal ministry to identify mines from the list that is currently reserved for Coal India Limited (CIL) within one month with the aim of opening up coal mines with deposits of 10 million tones and above for captive mining for the power sector.

Railways

As many as ten companies have bid for running freight train services all over the country and submitted Rs 50 crore each as registration fees. Additionally, four other bidders have bid for lines excluding Delhi-Mumbai with deposits of Rs 10 crore each.

Before the budget, Indian railways has rewarded its largest customer, the coal industry, by reducing punitive charges for overloading by almost half. The move is expected to help coal-consuming sectors like steel, power and cement.

INFLATION

The annual point-to-point inflation rate based on wholesale price index (WPI) has gone down to 4.08 per cent for the week ended February 4, 2006 from 4.30 per cent during the previous week. The inflation rate was higher at 4.96 per cent in the corresponding week last year.

The WPI in the week under review has declined by 0.1 per cent to 196.2 from 196.4 for the previous week (Base: 1993-94=100). The index of primary articles’ group (weight 22.02 per cent) has declined considerably by 0.7 per cent to 195.1 from the previous week’s level of 196.6, due to a significant decline in the price index of both, food (by 0.8 per cent) and non-food articles (0.6 per cent). The index of food articles has gone down to 195.1 from 196.6 in the previous week, mainly due to reduced prices of jowar, arhar, fish-inland, bajra, fruits and vegetables and wheat. The index of non-food articles has gone down to 175.9 from 177 in the last week, mainly due to the reduced prices of rape and mustard seeds, raw cotton, groundnut seed and mesta. The index of ‘fuel, power, light and lubricants’ group (weight 14.23 per cent) has increased marginally by 0.1 per cent to 311.4 from 311 in the previous week. The index of ‘manufactured products’ group constituting the maximum of 63.7 per cent of total weight, has also risen marginally by 0.1 per cent to 171.5 from the previous week’s level of 171.4, mainly due to increased prices of food products, ‘non-metallic mineral products’ base metals and ‘machinery and machine tools’.

The latest final index of WPI for the week ended December 10, 2005 has been revised downwards; as a result both, the absolute index and the implied inflation rate declined to 197.2 and 4.39 per cent respectively, as compared to their provisional week’s level of 197.4 and 4.50 per cent, respectively.

The rate of inflation has generally remained contained in the range of 4 to 4.5 per cent in last two months. Moreover, the Reserve Bank of India , has hiked the reverse repo rate, the rate at which banks park their excess money with the RBI, by 25 basis points to 5.5 per cent on January 24, 2006, with a view to anchoring inflationary expectations and maintaining the emphasis on price stability.  

BANKING

Public sector Indian Overseas Bank (IOB) has announced that it would acquire 70 per cent stake in Bharat Overseas Bank (BhOB) for about Rs 170 crore. IOB already owns 30 per cent of BhOB. The board of directors of IOB has approved the proposal of buying BhOB shares held by other 6 banks at Rs 155 per share, subject to approvals. The acquisition of BhOB by IOB will be the first instance of a government-owned bank acquiring a private sector bank. The earlier cases involved merger of private sector banks put under moratorium by the RBI with public sector banks. IOB is governed by the Banking Companies (Acquisition) Act, while BhOB is a bank formed under the Companies Act. It needs to be decided whether the procedures laid down in the Companies Act or the Banking Companies (Acquisition) Act will have to be followed, or both the acts will have to be adhered to.

Sahara India Financial Corporation (SIFC) is required to call back its investments in various group companies in the first quarter (April-June) of the financial year 2006-07, as a high-level audit team of the RBI is conducting an on-site inspection of the country’s largest residuary non-banking finance company (R-NBFC). SIFC will not have any discretion in regard to its investments of public deposits in the April-June quarter. In other words, its entire deposit portfolio will have to be invested in instruments stipulated by the RBI. They are government securities, deposits of other banks and corporate bonds with double (AA +) and above rating. As a result of this, SIFC will have to call back its investments in various projects. This is one of the reasons why it sold off its airline business. Henceforth, it will not be able to make any fresh investment in any of its ventures from the public deposits of the R-NBFC. SIFC’s deposit base is worth around Rs 12,000 crore. The RBI has progressively tightened investment norms of R-NBFCs as it is rationalising the pattern of direct investments by R-NBFCs to reduce the overall systemic risk in the financial sector.

As a final step after examining all the operations for revival of the bank and in order to protect the interest of the depositors, the RBI, has decided to cancel the licence of the Dhansura People’s Co-operative Bank, Gujarat . However, on liquidation every depositor is entitled to repayment of his deposits up to Rs 1 lakh from the DICGC. The Registrar of Co-operative Societies, Gujarat has also been requested to issue an order for winding up the bank and appoint a liquidator for the bank. The bank has been prohibited from granting or renewing loans and advances, since June 19, 2004, as it has been facing liquidity crisis.

PUBLIC FINANCE

The annual plan size for the states of Haryana and Jharkhand for the year 2006-07 have been approved at meetings between the Deputy Chairman Planning Commission and Chief Ministers of the respective states. The plan outlay for Haryana for 2006-07 has been agreed at Rs 3,300 crore. This includes onetime additional central assistance of Rs 25 crore provided for specific projects of special interest to the state. The plan outlay for Jharkhand for the year was agreed at Rs 6,500 crore. This includes one time central assistance of Rs 35 crore for projects of special interest to the state.

The Union Cabinet has given its approval to the Protocol for amending the convention between India and Japan for the avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income.  The first round of negotiations for amending the Double Taxation Avoidance Convention was held in Tokyo in February 2005 and the final round was held in New Delhi in October 2005. The agreement will stimulate the flow of capital, technology and personnel from India to Japan and vice-versa.  It will provide tax stability and also reduce any obstacles for providing mutual co-operation.

Chairman of the committee set up by the government to make recommendations on the pricing and taxation of petroleum products has presented its report to Minister of Petroleum and Natural Gas. The minister said that the report and its recommendations will be examined by the government keeping in view the current domestic imperatives specially the needs of the weaker sections of the society, the financial health of the oil companies, equitable burden sharing and energy requirement of the growing economy. The Committee has recommended shifting to a trade parity model from the current import parity model for pricing petrol and diesel, reduction in custom duties on petrol and diesel from 10 per cent to 7.5 per cent and shifting excise duty from an ad-valorem levy to a specific levy.  While the committee has acknowledged the need for subsidizing kerosene, it has called for the subsidy to be restricted to poor families only.  The committee, however, has seen no merit in subsidizing LPG which it felt is overwhelmingly used by the non-poor segment of the society. The committee recommended an increase of Rs 75 per cylinder of LPG. 

The Committee’s recommendations broadly could be put in three groups:

(a)        Pricing of petrol and diesel,

(b)        Pricing of domestic LPG and PDS kerosene.

(c)                Restructuring of excise duties on petrol and diesel

Mumbai, Pune, Nagpur , Bhopal , Ujjain , Indore and Jabalpur are the seven cities that have submitted city development plans (CDPs) to the Union Urban Development Ministry so far in order to get funds under the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) to finance their infrastructure development projects. These CDPs’ are being sent to the National Institute of Urban Affairs for project appraisal. After this the Mission Directorate would examine them before finally sending them to the Central Sanctioning & Monitoring Committee for approval.

 Less than 500 crore rupees are available to take up projects under the JNNURM during the financial year 2005-06 and some projects would receive funds during the period. The union government will release its 50 percent share towards the cost only after the state contributes the other half for any project taken up under the scheme whose ultimate aim is eradicating urban poverty covering all the areas in the city, especially slums.

Public Sector National Aluminium Company Ltd. (NALCO), the leading producer & exporter of aluminium in the country has decided to pay an interim dividend of 20 per cent, amounting to Rs 128.86 crore for the financial year 2005-06. Out of this amount Rs 112.34 crore to the government and balance goes to other shareholders of the company.

FINANCIAL  MARKET

Capital Markets

Primary Market

Gitanjali Gems Limited (GGL) is an integrated diamond and jewellery manufacturer and is one of the largest manufactures and retailers of diamonds and jewellery in India . GGL is offering 1.7 crore equity shares of Rs 10 each in a 100 per cent book building process in a price band of Rs 170-195 per share. The issue size is Rs 289 crore on the lower end and Rs 3332 on the upper end of the price band.

Nitco Tiles Ltd, is tapping the market through issue of 1 crore shares in a price band of Rs 140 – Rs 168 per share between February 22 and 27. Out of the total proceeds the company has planned to use Rs 21 crore for expansion of its ceramic floor tiles capcity, Rs 37 crore for manufacturing of wall tiles and Rs 38 crore for installation of six wind-mills.

Union Bank of India is entering the market with a follow on issue through 100 per cent book building process to raise Rs 562 crore at a price band of Rs 115-125 per share.

B L Kashyap and Sons, a construction company caters to needs of diverse sectors like multiplexes, malls and others, is offering 27.5 lakh equity shares of Rs 10 each with a green shoe option of 2.5 lakh equity shares in a 100 per cent book-building process. The price band is Rs 625 – Rs 700 the issue size, exclusive of green shoe option, is Rs 172 crore at the lower end and Rs 193 crore at the upper end of the price.

Visa Steel, a multi-product company with the product portfolio of pig iron, coke, coking coal, steam coal, chrome concentrates and iron ore fines, is coming out with a 100 per cent book-built issue in a price band of Rs 52-57 per share. The issue size on the lower end comes to Rs 182 crore and Rs 200 crore on the upper end of the price band.

Mahindra and Mahindra Financial Services which provides finance for vehicles, tractors and cars in rural and semi-urban areas, is tapping the market by offering 2 crore shares worth Rs 10 each in a price band of Rs 170-200.

JK Cement India (JKCL) is popularly known as JK White Cements is coming out with a 100 per cent book built follow on issue in the price band of Rs 145-155 per share.

Secondary Market

During the week, the stock indices rose to a new high before relenting to profit booking. BSE sensex touched the lifetime high of 10,195.42 before closing for the week at 9981.11. The week began on a positive note with capital goods, automobiles, pharma and FMCG stocks driving the rally. However, the major correction came on Friday with selling across the board and that was partly triggered by the huge positions in F&O segment.

Recently, the number of stock touching a new high has been falling while the number of stocks making a new low has been rising steadily. Among the sectoral indices of BSE, the FMCG was the best performing index followed by the auto, while the metals and Bankex index registered worst falls.

The FII net investment between February 1 and 17 has been Rs 3,968 crore with purchase of Rs 23,435 crore and sales of Rs 19,468 crore. During the week under review, the FIIs have been net sellers in two of the four sessions.

Mutual funds have been net seller between February 1 and 20 to the extent of  Rs 307.06 with sales of Rs 6230.62 crore and purchase of Rs 5923.56 crore.

Derivatives

F & O segment witnessed substantial outstanding positions contributed by the high volatility level and the rollover trades from February to March expiry contracts. The average daily turnover was around Rs 24,500 crore during the week. The foreign funds were among the major participants in index derivatives, namely, nifty futures and options.

The outstanding positions in Nifty futures have increased in March expiry contracts while the same for February contracts has declined. It is a clear indication of rollover effect. The cost of carry has also witnessed substantial amount of fluctuation and remained in the negative zone throughout. The discount on nifty futures has declined from 13 points to merely 3 points.

Government Securities Market

Primary Market

As per the calendar for issuance of dated securities, an auction of dated security with 10 years to 14 years tenure was scheduled during February 14-22, 2006 for Rs 5,000 crore; the RBI has informed that on review of the current status of central government finances, the Government of India in consultation with the Reserve Bank of India have decided to cancel the scheduled auction.

Secondary Market

Ahead of the reporting Friday, the demand for funds increased leading to firmness in the call rates as the supply remained constrained. The average daily reverse repo subscriptions remained stable. Meanwhile CBLO segment clocked the highest volume of Rs 22,336 crore on February 16.

The secondary market remained concerned over the impending loan floatation amidst tight liquidity situation. However, the market sentiments remained positive, as the government has decided to scrap the bonus payable under the monthly income scheme of the post office. The weighted average YTM on 8.07 per cent 2017 has remained steady at around 7.34 per cent.

Bond Market

Canara Bank tapped the market to mobilize Rs 425 crore through issue of tier-II bonds by offering a coupon rate of 8.15 per cent.

Foreign Exchange Market

Due to sustained dollar gains following the US Fed chairman’s testimony, suspected RBI interventions and slower inflow of foreign currency asset led to a depreciation of the rupee-dollar exchange rate has from Rs 44.21 on February 10 to Rs 44.46 on February 17.

The six-month forward premia rose from 2.04 per cent on February 10 to 2.33 per cent on February 17.

Commodities Futures derivatives

The commodity market is witnessing a repetition of a manipulation syndrome, which was first seen last month in urad contract on NCDEX. The futures contracts are settled on the 20^th Feb and the final settlement price is based on polled spot price on the exchange.  The spot price of urad has jumped from     Rs 2576 on the February 9 to Rs 2949 on February 15, an increase of Rs 373 per quintal. It may be recalled that a similar incident was observed in urad on NCDEX in the January contract, wherein prices had jumped within a period of six days between January 12 and 18 from Rs 2712 to Rs 2925 per quintal. The exchange had been pulled up for announcing a five-day average spot price for the determination of the future settlement price in January., which would have thwarted the price manipulation. However, the manipulators got away as the contract was settled at a higher rate when the FMC asked the exchange to revert to the original formulation of future price determination.  This repetition in February contract only proves that manipulators are having an open field. Surprisingly, NCDEX is not initiating an action and even the FMC has not taken any steps except for keeping a watch.

Chana prices in the spot and futures market are expected to decline by 20 per cent and 10 per cent, respectively, by the end of March owing to over supply from Delhi and Rajasthan.

FMC director, Anupam Mishra, has said that there need not be a contract every month, especially in case of agricultural commodities.

INSURANCE

Uttar Pradesh (UP) has become the nation’s first state to launch a unique farmer’s insurance scheme. The farmers will be insured for a maximum amount of Rs 1 lakh for accidental deaths, while monetary benefits will be given to them due to physical handicap caused by accident. The government has paid the first premium of Rs 16 crore to New India Insurance Company to cover more than 25 million farmers spread out in 70 districts. (p.44, IRDA, January 2006).

CREDIT RATING

For the first time in the history of Icra, the rating upgrades have exceeded the downgrades in 2005. The severity of downgrades during 2005 was also low with the downgraded ratings remaining within their respective broad categories. Unlike in 2004, when certain downgrades breached their respective categories to move into lower ones, 2005 did not see any investment-grade rating moving into a lower category despite downgrading.  Icra said the ratio between ratings downgrades and upgrades fell to 0.33 in 2005 from 1.2 in the previous year, as the number of downgrades saw a sharp decline over the period, even as the number of upgrades saw a marginal rise. This is the first time in the rating agency’s history that the ratio has fallen below one. 

CORPORATE SECTOR

Bharat Heavy Electricals Limited (BHEL) has secured a $ 457 million contract to set up a 500-mega watt (mw) steam power plant in Sudan . It would be commissioned for National Electricity Corporation and completed by 2009. The contract involves installing four units each of 125 mw – crude oil-fired boilers, steam turbines, generators, control systems and 220 KV switchyard and auxiliaries for the Kosti power plant. The plant would be later expanded to 3,000 mw. BHEL would manufacture steam turbine, generators and pumps at its Hyderabad plant, while boilers and electrostatic precipitators would be manufactured at the company’s Trichy and Ranipet plants, respectively.

DS Construction has received a road contract for Rs 1800 crore express highway, planned in Haryana.

Great Eastern Shipping has signed a contract to buy an 11,000 DWT, aframax crude carrier to enhance its fleet strength.

Gammon India , a construction company, has won four projects from National Highway Authority of India and National Hydroelectric Power Corporation Limited worth Rs 1004.7 crore.

Raymond has forayed into children’s apparel segment with the launch of kid’s wear brand, Zapp.

Raymond has entered into a 50:50 joint venture with a Belgium firm, UCO NV . Both the companies will bring their denim business under the joint venture company, UCO Raymond, to create a capacity of 80 million metres a year. The company will be based out of Europe .

Dr. Reddy’s Laboratories has entered into an agreement to acquire German generic drug maker Betapharm for approximately Rs 2688 crore. The acquisition is the largest by an Indian company in the overseas market after Ranbaxy.

Orchid Chemicals and Pharmaceuticals has entered into a long term master research and development agreement initially for seven years, with pharma major Pfizer International Llc (Limited liability company) for developing animal health products for the global market.

Alkem Laboratories and the University of Manitoba have entered into a Memorandum of Understanding for research collaboration of therapeutic molecules, extraction of biologically active molecules from plants and animals, production of sufficient quantities of product to conduct animal and human clinical trials and investigation for product development and consumer acceptance.

Hindustan Lever Limited has reported a 14 per cent rise in net sales to Rs 2,974 crore for the fourth quarter ended December 2005 and net profit has surged by 56 per cent to Rs 520 crore over the same period previous year. Its fast moving consumer goods sale have jumped up by15.8 per cent, with home and personal care products growing at 17.3 per cent and foods at 9 per cent, respectively. For the year ended 2004-05, its net sales have increased by 11 per cent to Rs 11,060 crore and net profit has reported 17.6 per cent rise to Rs 1,408 crore over the same period a year ago.

GSK Pharma has reported 79 per cent increase in its net profit to Rs 42.4 crore for the quarter ended December 2005.

South East Asia Marine Engineering and Construction has registered 67 per cent growth in net sales to Rs 27.4 crore for the quarter ended December 2005 and net profit increased by 19.8 per cent to Rs 15 crore over the same period a year ago.

Petron Engineering Construction’s net sales have decreased by 20 per cent to  Rs 62 crore for the quarter ended December 2005 and net profit has also dipped by 56 per cent to Rs 1.05 crore over the same period previous year.

LABOUR

In a conference on ‘Pension Reforms in India’ organised by Federation of Indian Chambers of Commerce and Industry (FICCI), population over the age 60 has grown at an annual rate of 4 per cent while the general population has grown only by 2 per cent. Interestingly, only 11 per cent of the total workforce of 402 million (Census 2001) in the country is covered under pension scheme and the remaining 89 per cent have no pension cover. Moreover, with the better expectation of life, the size of the aged population would expand rather rapidly, which would increase the pension burden in the next decade and so. It is expected that in 2010, about 9 per cent of the country’s population will be over the age of 60 and this would increase to 4 per cent in 2030 and to 17 per cent 2040.

SOCIAL SECTOR

Education

The Planning Commission has approved Rs 16,128 crore for various elementary education programmes for 2006-07, an increase of almost Rs 5000 crore from Rs 11,217 crore in the current fiscal year. The major part of this allocation would be for the Sarva Shiksha Abhiyan incepted in 2002, (Rs 11,000 crore from Rs 7,156 crore), which accounts for more than 68 per cent of the total allocation. Interestingly, the demand for increased allocation for Sarva Shiksha Abhiyan (SSA) by the Ministry of Human Resource Development has been approved without any cuts for the first time. This can be attributed to the marked improvement in the utilisation of funds record for SSA. By January 2006, the programme has exceeded its budgetary allocation of Rs 7,156 crore by nearly Rs 500 crore taking total spending to Rs 7440 crore. It is further expected that the total expenditure would touch Rs 7,800 crore at the end of this fiscal year. In addition to this, resource utilisation at state-level has also been noteworthy.  By December 2005, the utilisation for SSA stood at 65 per cent (Rs 6,200) of the total budgetary allocation of Rs 9,500 crore (centre and states combined). Similarly, the states accounted for nearly 33 per cent or Rs 2,051 crore of the total budgetary allocation. The mid-day meal scheme would receive Rs 4,348 crore, which accounts to 30 per cent of the total allocation to elementary education programmes. This is as against the demand for Rs 8,000 crore, but more than the allocation of Rs 3,010 crore for the year 2005-06. Though not at par with SSA, the scheme has already exceeded its budgetary allocation of Rs 3,010 by Rs 300 crore this fiscal so far. A mandatory provision of cooked meals since January 2005 may explain increased expenditure on the programme.

According to the report titled ‘Social Development Report’ compiled by the Council of Social Development, the economic returns of education in India are found to be fairly high. Interestingly, it has mentioned that the rate of economic returns to investment in education is comparable to that of in physical capital, and therefore, the report has adopted the approach of ‘human investment’ vis-à-vis education. However, by supporting Education Commission (1996) findings and admitting the overall bleak education scenario across various states, the report points out widespread poverty as the main rationale behind increasing number of dropouts. What is even more alarming is the lack of interest in studies that results in non-enrolment of students in schools.  

EXTERNAL SECTOR

India ’s exports to gulf countries have grown by 33.04 per cent from $7 billion in 2003-04 to $9.4 billion in 2004-05 and are expected to go up to $15 billion by 2010, according to Assocham. On the other hand, India ’s imports from Gulf nations have gone up by 115 per cent from about $3 billion in 2003-04 to $6.9 billion in 2004-05. Crude oil remains a dominant item of import.

A tussle for control has arisen between ministry of commerce and communication and information and technology ministry. The latter wants IT-specific zones to be brought under the framework of the existing software technology parks policy and be under its overall monitoring and control rather than under special economic zone policy. However, the commerce ministry has rejected this idea as it felt that such a move would lead to similar demands from other ministries.

According to the office of the superintending agriculture officer, the proportion of grapes exported from Nashik district has increased four folds from 3775.37 tonne in 2000-01 to 13359 tonne in 2004-05. The district is exporting grapes to nine countries including Russia , Holland , Belgium , UK and Germany . For the year 2005-06, the export target of 20000 tonne has been set, which is expected to generate a turnover of 200 crore. Nashik has emerged as the wine capital of the country with 50 per cent or 18 wineries located in the district.

INFORMATION  TECHNOLOGY

The Internet and Mobile Association of India (IMAI) revealed after a survey that the number of cyber cafes have increased to 1,05,350 in 2005 as against just 18,000 cafes in 2001. The survey also predicted that the number would rise by 40 per cent every year. Cyber cafes are the premier hubs bringing internet to the public and tier-two cities are witnessing increased internet-related activities especially online retailing. The report states that cyber cafes have fast evolved into popular access points for e-commerce and visitors are using them increasingly for doing business and not just for chatting or mailing purposes. The survey revealed that over 47 percent of the visitors have shopped online more than once during the last six months. While 36 percent have shopped between two to four times, 23 percent visitors made purchases more than 10 times.

*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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