Current Economic Statistics and Review For the Week 
Ended March 04, 2006 (9^th Weekly Report of 2006)

Theme of the week:

Food Processing Industry: An Untapped Potential*

Introduction  

The Indian agriculture, having achieved self-sufficiency in foodgrains, is on the threshold of a new stage in its development process. No doubt, this self-sufficiency is at the current stage of average per capita income and income distribution. The production requirement would be much more when per capita income rises and when incomes are more equitably distributed. Therefore, the sector needs to continue producing more, apart from improving the quality of its produce. At the same time, the minimization of post-harvest losses, along with the diversification of production structure, is necessary for sustaining the growing needs of the society and also to meet the new challenges and to tap the new opportunities thrown open by its integration with the global market. The food processing industry, constituting a part of the broader agro-processing industry, possesses significant backward linkages with the agricultural sector and portrays tremendous potential for forward linkages with the rest of the economy; this would be through diversification and commercialisation of the agricultural sector and through value addition, enhancing the shelf life of products and producing a larger exportable surplus. Within the agro-processing industry, food processing constitutes the most dynamic segment as income elasticity of demand for its products is known to be the highest and rising fast. The organized food processing industry is further classified into many sub-sectors as shown below:

The food processing sector ranks fifth in the size accounting for 6.3 per cent of the gross domestic product with 6 per cent of industrial investment. (Chengappa P.G., 2004). The industry employs around 18 per cent of the country’s industrial force and also accelerates employment in the allied sectors like packaging, storing, transporting, grading and distribution through wholesale and retail outlets. Yet, it is in its nascent stage of development in the country and has a share of about 1 per cent in the international processed food market ( India Brand Equity Foundation).

The industry structure is characterized by small scale of operations, fragmentation and duality between the organized and unorganised segments. For instance, there are lakhs of bakeries, traditional food units and fruit, vegetables, spices processing units in the local markets that form a part of unorganised segment. This segment also comprises of primary food processing units like rice-mills/hullers, flourmills, pulse mills and oil-seed mills. The organised sector, although covering a lower share of the market consists of over 820 flour mills, 418 fish processing units, 5198 fruit and vegetable processing units and 171 meat-processing units at the all India level.

Snapshot of major sub-sectors

Fruits and vegetables

For a strong horticulture base, this sub-sector provides not only a large quantity but also a vast variety of products. While the country is the largest producer of vegetables and the second largest producer of fruits, it is also rich in the production of spices. Even so only 2 per cent of the total horticulture produce is processed in the country. However, since liberalisation and withdrawal of excise duty on fruit and vegetable products, there has been significant expansion in this sub-sector. The production of processed fruits and vegetables (excluding fried and sun-dried fruits and vegetable products) has increased at a compound growth (CAGR) of 7.8 per cent per annum over the period of 1993 to 2003 (Chart A). The installed capacity of fruits and vegetables processing sector has also expanded to 19.24 lakh tonnes from 11.08 lakh tonnes over the same period at the rate of 5.7 per cent per annum (Annual Report 2004-05, Ministry of Food Processing Industry).

In the recent past, with the entry of multinational firms into this market, the production of ready-to-serve products like fruit juices, veg-spice pastes and dehydrated and frozen fruits, has been growing. For instance, the sales earnings of fruit juices, pulps, concentrations are estimated to have stood at Rs 184 crore in 2002-03 as against Rs 176 crore in 2001-02, while those of sauces, ketchups and jams have been Rs 201 crore as compared to Rs 183 crore in 2001-02.

Milk and milk products 

India , accounting for over half of the total milk output in Asia , enjoys the top-most position in world milk production - 90.7 million tonnes in 2004-05 (Economic Survey 2005-06). While strong increases in domestic demand have sustained prices, the output of this sector has been increasing as a result of the so-called white revolution and encouragement to production by milk co-operatives. During 2004-05, it has grown by around 3 per cent. With high international prices, export markets offer potential for further growth. However, the milk-processing sector has not yet exploited this rich resource base. The unorganised segment dominates processing activities leaving only 15 per cent to be processed by the organised players. A report by Federation of Indian Chambers of Commerce and Industries (Ficci) has revealed that in 2002-03, the milk powder and condensed milk production (approximately 155 thousand tonnes) has dominated the production of this sub-sector followed by malted milk foods (approximately 108 thousand tonnes) and infant milk foods (72 thousand tonnes). In terms of sales, malted milk foods products have recorded the highest gains followed by milk powder and condensed milk during the same period (Chart B).

Meat and poultry products

Bestowed with livestock population of 485 million (Live Stock Census 2003), production of meat and poultry processing has surged steadily over the last 10 years. As per the Annual Report 2004-05 of the Ministry of Food Processing Industry, meat products manufactured by licensees under Meat Food Products Order (MFPO) 1973 has increased at CAGR of 7.3 per cent to around 4046 million tonnes in 2003-04 from 3041 million tonnes in 1999-2000 However, only 1-2 per cent of this production is converted into value-added products like sausages, ham, bacon, lucheon meat, kababs, meat balls etc. As per Economic Survey 2005-06,with output of 45 billion eggs in 2004-05, India ranks among the top six egg producing countries in the world. Also, India is among the top five chicken meat-producing countries in the world (FAO Data 2004, provisional). Around 1.65 million tonnes of chicken-meat was produced in 2004. With an increase in availability of eggs in the country and the rising demand of egg products in Europe, Japan and other countries, India has started exporting egg products like whole egg powder, albumin powder, yolk powder, etc.

Fisheries

India is the third largest producer of fish and the second largest producer of inland fish in the world. The provision of considerable infrastructural facilities for processing of marine products has proved beneficial for the marine processing. There are 369 freezing units with a daily processing capacity of 10,266 tonnes and 499 frozen storages with a capacity of 134,767 tonnes, in addition to plentiful and enriched marine resource (with an estimate of 6.51 million tonnes in 2003-04). However, the processing capacity in the sector has still not been utilized to its optimum level. Most of the processed marine products cater to the demand in foreign markets.

Beer and alcoholic beverages

With India being the third largest market for alcoholic beverages in the world, this industry provides tremendous potential for growth. As depicted in Chart C, beer constitutes a significant part of total production in this market. As per sales data from Ficci, sales of beer has grown at a CAGR of around 6.7 per cent during 1997-98 through 2002-03,and that of wine, spirit and other liquors taken together has increased at a CAGR of 2.2 per cent during the same period.

Grains

The most prominent activity in foodgrains processing is primary milling of wheat, paddy, pulses and oilseeds. There are 91,000 rice hullers and 260,000 small flour mills engaged in primary milling. There are 43,000 modernised rice mills/huller-cum-sellers. The number of modern rice mills has increased from 25,000 to 40,667 between 1991-2003. In addition, there are 946 roller-flour mills producing quality flour required for bakery industry and home consumption. Around 820 large flour mills in the country convert about 10.5 million tonnes of wheat into wheat products. Also, there are 10,000 pulse mills, milling about 75 per cent of pulse production of 14 million tonnes. (Indian Journal of Agriculture Economics, 2004). The Ministry of Food Processing has extended financial assistance for 27 rice mills, 13 flour mills, 21 edible oil mills and 8 in pulse mills till December 31, 2004 (Annual Report 2004-05, Ministry of Food Processing Industry).

Packed foods and soft drinks

Bread and biscuits constitute the largest segment of consumer foods. Their production is about 4 million tonnes per year. Out of the total production of bread, 40 per cent is produced in the organized sector and the remaining 60 per cent in the unorganised sector. Conversely, out of total production of biscuits, the organized sector accounts for 77 per cent of the market share. Soft drinks constitute the third largest packaged foods market regularly consumed after packed tea and packed biscuits. Its production has jumped to 2500 million litres in 2004, a spurt of 12.6 per cent from 2220 million litres in 2003. A new product, which has now become popular pari passu with the rapid growth of the mobility of people is packaged water, the sales of which have also been rising as it is being made available in varied pack sizes catering to consumer preferences. (Refer to Table 1 for a brief overview of the chief players and products in the domestic food processing market in India .)

Export Trends

The food processing industry has witnessed strong export growth during the last few years. Exports have been augmented steadily from Rs 4381.6 crore in 2001-02 to Rs 5747.4 crore in 2004-05, registering a CAGR of 7 per cent (Table 2).

In the processed fruits and vegetables category, over the period 2001-2005, while pickle & chutney have a small contribution (in percentage terms) to exports, dried and preserved vegetables have the largest percentage share. In case of animal products, buffalo meat has accounted for more than 70 per cent of the total foreign exchange earned by this category during 2001-2005. Among the other processed foods category, jaggery and confectionery were the largest foreign exchange earners in 2001-02, which have been displaced to the second position by guargum in 2004-05.

SWOT Analysis

Strengths of the industry

·        Diverse and rich resource base: India's strengths in the agro and processed foods sector include round-the year supply of raw material, trained and cheap manpower, largest milk production in the world, largest livestock population in the world, largest production of vegetables, second largest production of food and fruits in the world, and fifth largest production of eggs and sixth largest production of fish – a rich fare indeed.

·        Locational advantage: The strategic geographic location of being close to the Middle East and South-East Asian countries is beneficial to India in so far as these countries are important destinations for a number of Indian agro and processed food products.

Weaknesses of the industry

·        Low processing level: India ’s agricultural production base despite being quite strong, simultaneously involves wastages of agricultural produce. There is under utilization of processing capacity and value addition has been meagre to the extent of 7 per cent as against 45 per cent in the Philippines and 23 per cent in China .

·        Insufficient infrastructure: Food processing industry is facing constraints in terms of non-availability of adequate infrastructural facilities, like post-harvest storage facilities, cold chain systems, refrigerated transport and cabinets, etc. Consequently, most of the processing units are forced to either close down or operate at very low capacities during off-season. Apart from this, around 40 per cent of the food produce goes waste in its journey from the farmer to the food-processing unit. Inadequate quality control and testing infrastructure and shortage of regional training centres to encourage entrepreneurs are some of the lacunae prevalent in the Indian food-processing sector.

·        Obsolete Machinery: The requirements of food processing machinery are being met by chemical processing machinery manufacturers, specialised machinery manufacturers and small-scale units. Most of them do not have the necessary design and infrastructure for developing new products and cost-efficient machinery and equipment.

·        Inadequate credit supply and insufficient finances: Low margins in the industry make for the accessibility of seed capital and working capital difficult, in turn adversely affecting the growth rate of the industry.

 A study by the Hyderabad-based, Administrative Staff College of India (ASCI), has pointed out that inadequate investment also signals the inability of the industry to meet the global quality standards or the required regulatory concerns. As per the Annual Report 2004-05, Ministry of Food Processing Industry, FDI investments have been high in 2001-02 at Rs 1036 crore, which have declined nearly to half of this amount at Rs 511 crore in 2004-05.

·        Dominance of the unorganised and fragmented industry players: This has hampered the establishment of backward linkages among the farmers. Lack of integration among the producers and the processors has caused the mismatch between the quality and quantity requirements among them, resulting in huge wastages as well as a wider price spread of the processed food items. Maintenance of quality hygiene standards have also become difficult because of the unorganised market structure

·        Complicated and multiple laws and regulating authorities: Food standards are overlapping, contradictory and highly prescriptive, making regulatory compliance difficult. For example, there are 13 laws enforced by nine ministries. Multiplicity of different taxes, in addition to local taxes and levies charged on different food and beverages items, are a major hindrance in inter-state movement of foodgrains and items.

·        Miscellaneous factors: Inadequate marketing of these products in the domestic as well as in the international market has been affecting the demand for these products. Lack of skilled manpower, lack of processable varieties of farm produce, seasonality of some raw material, high inventory carrying cost, high packaging cost and low demand for processed foods on account of cultural preferences for home-made and fresh food are some of the other problems faced by the industry.

Opportunities for the industry

·        Changing socio-cultural status: The robust economic growth has pushed the disposable incomes of the consumers, 45 per cent of which are spent on food items. In addition to this population growth is also playing a major role in triggering the demand with baby food items showing the great potential to grow at a faster pace The growing urbanisation, nuclear families, increasing number of working women, etc., are slowly influencing the consumption habits and patterns, shifting the consumer preferences in favour of ready-to-eat preparations, thus in turn accelerating the demand for these products and expanding the scope of the industry. Increasing number of NRI-supported families and NRIs themselves visiting the country apart from the increasing number of foreigners residing in the country, are also responsible for changing composition of the consumption basket to some extent, in turn providing impetus for the food processing industry

·        Rising exports from the industry: The food processing industry in India has a large export orientation. Though the industry has first begun its foray into the export market, there still exists tremendous scope, given its current 1 per cent share in the global processed foods market. The international markets, in fact, have started to look at India for more than its traditional product lines, such as spices and cashews. Though as yet symbolic, the Indo-US trade agreement signed o March 02, 2006 on the eve of President George Bush’s visit to India is said to open opportunities for even Indian mangoes to be exported to the US.

·        Promotion of brands: Indian brands have not made inroads into the international market to a large extent. However, FoodPro, the exhibition on food processing industry organised by the Confederation of Indian Industry (CII), has highlighted that Indian foods in processed form are in demand. For instance, the supermarkets in the UK are paid to stock £2 billion of Indian ready-to-eat and cooked foods.

Threats to industry

·        Increasing Competition: The lack of economies of scale and increasing penetration by multinational corporations pose a potential threat to a large number of Indian players in the coming years. The removal of quantitative restrictions on imports and exports have further aggravated the challenge to domestic producers

·        Quality standards: Given the fragmented nature of the industry as also the wide geographical spread of the market, the principal challenge for agencies enforcing food laws is trained manpower and testing facilities. Food adulteration is rampant. Marketing sub-standard quality, mixing low-price inferior substitutes with superior quality food, misbranding, passing off one product as another, cheating in weights and similar acts of skullduggery are not controlled strictly. Continuation of these practices on a larger scale is adversely affecting consumer confidence, thus indirectly shrinking the market size for these products.

·        Labelling and tracebility: In the backdrop of fragmented food production facilities, the long supply chain and the non-uniform quality of raw materials and ingredients, food manufacturers are prone to be more reluctant towards labelling and traceability provisions. However, to advance consumer welfare and safety, the foods placed on shop shelves are to be so labelled as to facilitate traceability of the supplier of food or raw material/ingredient Moreover, labelling and traceability have become issues of great import for food manufacturers in most developed economies (Exports to the European Union, for instance, have to conform to labelling and traceability standards on genetically modified foods). Following low price-elasticity for processed food products, the rising consciousness about the nutritious food and increasing awareness among the consumers regarding food safety, lax approach on the part of manufacturers poses threat in terms of the of loss potential market at domestic as well as international levels. Thus, the challenge lies in retaining the nutritional value, flavour, aroma, and texture of foods, and presenting them in near natural form with added conveniences.

Government Promotion

The government has to play an active role through various supportive and corrective measures to tap the vast potential of the food processing sector. Some of the measures already taken by the government are as follows:

·        A deduction of 100 per cent of profit for five years and 25 of profits thereafter for the next five years has been allowed under Income Tax Act, in case of new agro processing industries set up to process, preserve and package fruits and vegetables. Excise duty of 16 per cent on dairy machinery has been fully waived for promotion of dairy processing industries. Excise duty on meat, poultry and fish was reduced from 16 per cent to 8 per cent in the 2005-06 budget. Excise duty on food grade hexane used in inedible oil industry has been reduced from 32per cent to 16 per cent in the 2005-06 budget.

·        Food Parks are being set up across the country to provide a one-stop shop for the industry and to facilitate exports. These parks make the provision of common facilities such as uninterrupted power supply, water supply, cold storage/ice plant, warehousing facilities, effluent treatment plant, quality control and analytical laboratory, and major processing facilities like fruit concentrate/pulp making units etc. as part of a food park. So far assistance to 47 food parks has been sanctioned in different states of the country.

·        The government has been providing financial assistance for many activities like setting up of quality control laboratories and research institutions, participating in international exhibitions, etc.

The other measures encompass the entire gamut of policies and laws related to food security and safety standards Several schemes are under implementation to upgrade food quality/safety requirements.

·        The Ministry of Food Processing Industries is closely associated with the activities of Codex Alimentarius Commission (CAC). CAC is an international body constituted by Food and Agriculture Organization (FAO) and World Health Organization (WHO) of the United Nations. Codex prescribes international standards for safety and quality of food as well as codes of good manufacturing practice (GMP) and other guidelines to protect health of the consumers. These standards, guidelines and recommendations are recognized worldwide for international trade and negotiations and also for settlings of disputes by WTO. This helps to harmonise the domestic laws and orders with the international ones.

·        Some of the fresh requirements that are promulgated under Section 3 of the Essential Commodities Act, 1955 such as provision of Fruit Products Order (FPO), 1955, for issuance of license and regulation of sanitary and hygienic conditions in the manufacture of fruit and vegetable products. This also specifies the maximum limits of preservatives, additives and contaminants for various products.

·        Another major order is Meat Food Products Order (MFPO), 1973, which has the objective of ensuring supply of wholesome meat food products to the consumers. The production of meat is governed under local by-laws. Slaughtering is a state subject and slaughterhouses are controlled by local health authorities; the processing of meat food products is licensed under Meat Food Products Order, (MFPO), 1973 The sanitary, hygienic, packing, marking and labelling requirements are specified in separate schedules of the Order.

·        In addition to this, for implementation of Total Quality Management including obtaining ISO: 9000Certification, Hazard Analysis Critical Control Point (HACCP). Certification, etc., assistance in the form of grant-in-aid is provided. During the financial year 2004-2005, the Ministry has provided financial assistance to various food processing industries for implementation of HACCP, ISO9000, GMP, Group Health Plan (GHP) practices.

·        In order to rationalize multiplicity of food laws, a modern integrated food law called ‘Food Safety and Standards Bill’ has been drafted. The proposed bill would be a single reference point in relation to regulation of food products, replacing 8 different food safety and adulteration laws.

Recent Developments

The government has accorded the status of priority sector for the food processing industry vis-à-vis bank credit in the budget for the financial year 2006-07. The government has also proposed to fully exempt condensed milk, ice cream, preparations of meat, fish and poultry, pectin, pasta and yeast from excise duty. The reduction in the excise duty on ready-to-eat packaged food and instance food mixed to 8 per cent from 16 per cent has also been suggested. In addition, a reduction in custom duty on packaging machinery from 15 per cent to 5 per cent has been proposed. Ministry of Food Processing Industries has proposed to set up a “National Institute of Food Technology / Entrepreneurship and Management (NIFTEM)”. The NIFTEM is aimed at developing world-class food technologists, entrepreneurs and managers in the food industry; providing business incubator services; undertaking frontier research for development of food products; providing food testing referral services; being an apex information resource centre for food industry and exporters; and assisting government in policy formulation.

Conclusion

Agro processing in general and food processing in particular has started gaining momentum. The government is aiming to hiking the processing of perishables to 20 per cent from the current 6 per cent, increasing value addition from the current 7 per cent to a whopping 70 per cent and improving the country’s share in the global market to 3 per cent by 2010 The various policy initiatives have been embarked upon in this direction.

To exploit the niche market available at domestic as well as the global level, further improvements like attracting more investment, development of infrastructural facilities, upgradation of technology available with the Indian manufacturers by taking assistance through foreign collaborations, in case of design know-how back-up etc are required. Other measures may involve improving the hygienic conditions of slaughterhouses, following the sanitary and phyto-sanitary standards and other practices like labelling, grading, etc., product innovation (for instance, tapping other meat sources like rabbit) to expand the scope of market, co-ordination of production-procurement-processing activities to lessen the impact of irregular supply of raw materials arising out of seasonable nature, etc.

If convenience is the symbol of modernization, then development of the food processing industry is one of the avenues leading towards it. India would benefit by exhibiting the competitive edge it enjoys in this direction – given its resource endowments. This needs to be supported by adequate investments and strong regulatory framework on quality standards to enable the domestic industry to meet the challenges posed in the global markets.

(*This note has been prepared by Ms. Pallavi Oak with inputs by Ms. Nilopa Shah.)

References

• Website of the Agriculture and Processed Food Products Export Development Authority

• Ministry of Food Processing, Government of India (2004), Annual Report, 2003-04

• Ministry of Food Processing, Government of India (2005), Annual Report 2004-05

• Chengappa P.G. (2004), “ Emerging Trends in Agro-Processing Sector”, Indian Journal of Agricultural Economics (Volume 59, No.1, January-March)

• Economic Survey 2005-06, Government of India

• Secretariat of Industrial Assistance (SIA): Various Issues, Government of India .

Highlights of  Current Economic Scene

AGRICULTURE     

According to the second advance estimate of crop production released by the government on February 22, 2006, total foodgrain output is expected to increase by 2.3 per cent in 2005-06 to be at 209.32 million tonne. Total kharif foodgrain production is expected to be at 108.15 million tonne in 2005-06 compared with 103.32 million tonne in 2004-05, where as rabi production is expected to be at 101.17 million tonne in 20005-06 against 101.29 million tonne a year ago. 

Rice output is likely to increase by 3 per cent to be at 87.9 million tonne and that of wheat would augment by meager 1.5 per cent. The highest increase in the output is witnessed by sugarcane (14.9 per cent). Despite the reported increased coverage under Bt cotton, the cotton output is likely to decline by 3.2 per cent to be 16.45 million bales of 170 kg each. Maize production is likely to be at an all time high at 14.99 million tonne, marking an increase of 6.1 per cent. However, the fall in the output of bajra has caused the output of the coarse cereals (as a group) to rise marginally by 0.2 per cent. Oilseeds have registered a record production, which has stood at 26.37 million tonne.

The Economic Survey 2005-06 has predicted the farm sector to grow by 2.3 per cent. With good kharif and bright rabi prospects, foodgrain production is expected to increase by five million tonne in 2005-06 to 209 million tonne. Development of alternative markets by shifting from the expensive public procurement and distribution system for better returns to farmers, improving bank credit conditions for higher profits, better marketing and thrust on futures trading are the some of the important measures advocated by the survey.

The recent bird flu outbreak has caused a major set back to the poultry industry in the country.  The demand and prices of poultry products has been affected drastically in Maharashtra along with Gujarat, West Bengal and Madhya Pradesh but remained by and large unaffected in the rest of the country. Sale of chickens in Mumbai has dropped with traders and wholesalers since the customers were wary of buying after news reports that strain of the deadly h5n1 virus was found in samples of birds.  As per the initial estimate the industry has lost Rs 1800 crore of business in the first 3 days. According to industry experts, the Indian poultry exports are expected to suffer the estimated loss worth Rs 350-Rs 450 crore, owing to at least for the coming 3 months and they are estimated to be around. Venkateshwara Hatcheries alone is expected to suffer export losses in the region of Rs 100 crore. Many countries including Malaysia , the US , Korea and Hong Kong among others had evinced interest in importing poultry from the country since China and Thailand were hit by bird flu. But now, most industry players and the government are uncertain about the emerging scenario.

The Cabinet Committee on Economic Affairs has approved a livestock insurance scheme for implementation on a pilot basis in 100 districts during 2005-06 and 2006-07. The scheme, with an estimated expenditure of Rs 120 crore, would cover 15 lakh animals. The Centre would subsidies 50 per cent of the premium, which would be restricted to two animals per beneficiary and would be given for one-time insurance of an animal for a maximum period of three years.

According to Indian Tea Association (ITA), world tea production in 2005 is estimated at around 1,821 million kg, an upsurge of 2.8 per cent, from around 1,777 million kg in 2004. Almost all tea-producing countries, except Malawi and Zimbabwe , have registered moderate increase in production in 2005. Malawi ’s production was down 24.4 per cent to 37.9 million kg and Zimbabwe ’s production (during January-October, 2005) was down by 20.6 per cent to 12.3 million kg.  On the other hand, while tea production in India has risen by 3.9 per cent to 927.9 million kg, that of Bangladesh has increased by 5.2 per cent to 58.6 million kg.

INFRASTRUCTURE

Petroleum, Petroleum Products and Natural Gas

Under the sixth round of national exploration licensing policy (NELP), the government has offered 10 blocks for coal-bed methane exploration along with another 55 for oil and gas. Of the total oil and gas blocks on offer, 24 are in the deep sea, 6 in shallow offshore and 25 onland blocks, bidding for all of which opens on February 28 and closes on September 15.  The new policy will see changes in the profit-petroleum sharing norms, whereby the government can stake its claim only once in five years, which at present is done annually. Profit-petroleum is the government’s share in oil and gas discoveries that can be claimed in cash kind.

Power

As many as 46 major power companies, including several foreign multinationals, have evinced interest to participate in the bidding for the first two ultra mega projects of 4000 megawatts each on offer at Sasan in Madhya Pradesh and Mundhra in Gujarat . Power Finance Corporation (PFC) has set the last date for submission of expressions interest (EoI) by companies at February 28 and that for the final competitive bids at September 30 with the aim of completing the process before end of December this year. The expected tariff by the developers is expected to be Rs 1.60 or even less and the cost for each 4000 mw project would be Rs 15000 crore.

Railways

The railways has earned Rs 29231.71 crore from freight traffic during the first ten months of the current fiscal year – a 16.64 per cent year-on-year growth in revenue, while freight traffic has grown by 10.38 per cent to 542.81 million tonnes in the same period. The highest revenue earning good has been coal followed by petroleum oil and lubricant (POL), cement and iron ore for exports.

INFLATION

The annual point-to-point inflation rate based on wholesale price index (WPI) has gone down to 4.02 per cent for the week ended February 11, 2006 from 4.08 per cent during the previous week. The inflation rate was higher at 5.12 per cent in the corresponding week last year.

The WPI in the week under review has risen by 0.2 per cent to 196.6 from 196.2 for the previous week (Base: 1993-94=100). The index of primary articles’ group (weight 22.02 per cent) has risen considerably by 0.5 per cent to 194.3 from the previous week’s level of 193.3, due to a significant increase in the price index of food articles by 0.9 per cent. The index of food articles has gone up to 196.9 from 195.1 in the previous week, mainly due to higher prices of milk, arhar, maize, fruits and vegetables, barley, ragi and wheat. The index of ‘fuel, power, light and lubricants’ group (weight 14.23 per cent) has increased marginally by 0.1 per cent to 311.6 from 311.4 in the previous week, due to the higher prices of lubricants and naphtha. The index of ‘manufactured products’ group constituting the maximum of 63.7 per cent of total weight, has also risen by 0.2 per cent to 171.8 from the previous week’s level of 171.5, mainly due to increased prices of food products, textiles, ‘non-metallic mineral products’ and base metals.

The latest final index of WPI for the week ended December 17, 2005 has been revised; as a result both, the absolute index and the implied inflation rate stood unaltered at their provisional levels of 197.1 and 4.62 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. According to the recently published Economic Survey 2005-06 by the Central Statistical Organsiation (CSO), the annual point-to-point inflation rate is expected to be at around 5 per cent at the end of March 2006.

BANKING

RBI has directed that loans to power distribution corporations/companies emerging out of bifurcation or restructuring of state electricity boards, may also be classified as indirect finance to agriculture which is part of banks priority sector lending.

ICICI Bank has bagged the ISO 9001:2000 certification Ltd, New Zealand for all its 21 operational integrated currency management centres.

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.

PUBLIC FINANCE

The annual plan outlay for Uttaranchal for the year 2006-07 was finalized at a meeting between the Deputy Chairman Planning Commission and Chief Minister of Uttaranchal. The annual plan size has been agreed at Rs 4000 crore. This includes special assistance of Rs 200 crore agreed by the Deputy Chairman Planning Commission for priority projects of the state.

The livestock insurance scheme has been formulated with the twin objectives of providing protection to the farmers and cattle rearers against any eventual loss of their animals due to death and to popularize it with the ultimate goal of attaining qualitative improvement in livestock and their products. Considering that the livestock owners, most of whom are marginal farmers and landless labourers are not in a position to bear the full cost of premium, it will be subsidized to the extent of 50 per cent. The entire cost of subsidy will be borne by the central government. Subsidy in premium will be restricted to two animals per beneficiary and will be given for one time insurance of an animal up to a maximum period of three years.

Minister of petroleum & natural gas informed that only marginal changes in domestic LPG prices, the last being in November 2004, have been made by oil marketing companies OMCs while no changes have been made in the selling prices of PDS Kerosene since April 2002. He added that consumer prices of petrol and diesel also have not increased in line with international prices. Combined profits of public sector OMCs, namely, Indian Oil Corporation, Hindustan Petroleum Corporation, Bharat Petroleum Corporation and IBP Ltd., have declined from Rs 10,818 crore in financial year 2003-04 to Rs 7,193 crore in financial year 2004-05.  During the current year, they have incurred losses of Rs 2,898 crore in the first nine months. He also said notwithstanding the steep rise in international prices of petroleum products, public sector OMCs have been modulating the price increase in petrol, diesel and domestic LPG besides maintaining the prices of PDS Kerosene, in consultation with the government.  In order to compensate the OMCs on account of non-realisation of the increased prices from consumers, government has decided in principle to issue oil bonds to the OMCs for Rs. 11,500 crore.

The ministry of tribal affairs has released an amount of Rs 1379.22 lakh to the government of Karnataka for infrastructure facilities and the ministry has also released Rs 86 lakh for construction of pre-metric boys and girls’ hostels in the state.

The Karnataka government had submitted proposals to the ministry for sanction and release of funds for infrastructure facilities viz. departmental institutions, additional infrastructure for existing ashram schools, infrastructure facilities in scheduled tribe (ST) habitats, providing drinking water, up-gradation of approach roads, drainage and sanitation, community halls, irrigation facilities, solar fencing to ST lands, solar street lights in ST habitats and for establishment of eklavya model residential schools for ST students. The state government had also submitted a proposal for releasing of an amount of Rs 58.33 lakh towards first installment for construction of four pre-metric boys’ and one new pre-metric girls’ hostel in different districts of the state and also Rs 27.66 lakh towards additional works to be carried out in the three hostels sanctioned during 2001-02.

The government has been implementing two credit-linked subsidy schemes of employment generation, namely, (i) Rural Employment Generation Programme (REGP) by assisting entrepreneurs in setting up village industries in rural areas and small towns, and (ii) Prime Minister’s Rozgar Yojana (PMRY) for creating employment opportunities for the educated unemployed youth in the rural as well as urban areas (approximately fifty per cent of the PMRY units established are estimated to be in rural areas).

Subsidy admissible to the beneficiaries of both the schemes is released through banks in combination with the loan provided by the banks. The assistance provided under the REGP in the country during 2005-06 upto December 2005 is Rs 164.49 crore. Under the PMRY, allocation and release of the funds for subsidy are related to the targets for States/UTs. The subsidy amount is released directly to the Reserve Bank of India (RBI), which in turn releases the necessary amount to the implementing banks. The amount of subsidy released to the RBI during 2005-06 upto December 2005 is Rs 194.20 crore. The amount of grant released to the States/UTs for entrepreneurial development and contingencies under the PMRY during 2005-06 upto December 2005 is Rs 201.80 crore.

The Employees State Insurance Corporation (ESIC) has launched a new scheme known as ‘Rajiv Gandhi Shramik Kalyan Yojna’ for the employees covered under the ESI scheme.  This scheme provides an unemployment allowance for them in case of losing employment involuntarily due to retrenchment/closure of factory etc. It has been estimated that out of 72 lakh ESIC beneficiaries around one lakh may lose their jobs in one full year due to retrenchment, outsourcing etc.  The scheme came into effect from  April 1, 2005 and a provision of Rs 162 crore has been made in the corporation’s budget estimate for the current financial year.

FINANCIAL  MARKET

Capital Markets

Primary Market

Mahindra Finance will be tapping the market on February 21 with a public issue of 20,000,000 equity shares with price band of Rs. 170 to Rs. 200 per equity share. The issue will close on February 24.

NITCO Tiles Limited is tapping the market with a public issue of 10,000,000 equity shares with a price band of Rs. 140 to Rs. 168 per equity shares. The issue opens on February 22 and will close on February 27.

JK Cements Ltd. tapped the market with its public issue of 20,000,000 equity shares with a price band of Rs. 145 to Rs. 155 per equity share. The issue would close on February 24.

B.L. Kashyap and Sons Limited tapped the market on February 20 with its public issue of 2,750,000 equity shares with a price band of Rs. 625 to Rs. 700 per equity share. The issue will close on February 23.

Secondary Market

During the week, the market sentiments remained bullish as the sensex kept on moving upward from 10,079.30 points as on February 20 to 10,244.05 points on February 23; helped by short-covering in the index heavy weight stock futures which in turned pulled up the underlying in the cash market thereby leading to a bullish market. However, despite a marginal fall in domestic inflation rate, the sensex declined at the close of week by 43.29 points as it closed at 10,200.76 points.

However, as compared to sensex, both BSE Small-cap and BSE Mid-cap have registered negative returns during the week of 1.52 per cent and 0.03 per cent, respectively. Among the sectoral indices, the highest gain was registered by BSE Metal (4.57 per cent), followed by BSE PSU (4.18 per cent) and BSE FMC (1.89 per cent).

Likewise, the broader S& P CNX Nifty also displayed an upward moving trend during the week as it moved from 3005.85 points on February 20 to 3062.1 points on February 23; the Nifty index fell by 12.05 points on February 24 to close the week at 3050.05 points. It ended the week with a gain of 68.55 points or 2.30 per cent.

The total net FII investment in equity during the first two months of the year 2006 has been around Rs. 8971 crore with purchases worth Rs. 64391.40 crore and sales of Rs. 55420.40 crore. Meanwhile, their net investment in the month of February has been around Rs. 544070 crore with purchases worth Rs. 29635 crore and sales of Rs. 24194.30 crore as of February 23,2006.

However, the mutual funds have been net sellers to the tune of Rs. 302.99 crore till February 23 with purchases worth Rs. 6692.99 crore and sales worth Rs. 6995.98 crore. Meanwhile, they have also been net seller during the first two months of the year 2006 to the tune of around Rs. 1475.29 crore with purchases worth Rs. 16550.24 crore and sales of Rs. 18025.52 crore.

Derivatives

The NSE’s F & O segment witnessed a turnover of around Rs. 150,142 crore during the week, with a daily average turnover of around Rs. 30,028 crore. on February 23, stock futures registered high turnover of Rs. 26257.12 crore followed by index futures at Rs. 8618.46 crore.

On February 23,the combined daily turnover of cash market and derivatives segment of both the bourses crossed the Rs. 50,000 crore mark. The derivative segment of NSE recorded a turnover of Rs. 38,165.45 crore while cash segment recorded a turnover of Rs. 8,832.25 crore. The BSE cash market witnessed a turnover of Rs. 3607.58 crore.

Government Securities Market

Primary Market

On review of current status of central government finances, the RBI has cancelled the forthcoming scheduled government securities auction, wherein the  government was expected to issue security with a maturity of 10-14 years worth Rs. 5,000 crore through the last scheduled issuance of the financial year ending March 31.

The RBI has mopped up Rs, 1,152 crore through 91-day treasury bill and Rs. 500 crore through 182-day treasury bill, respectively. The cut-off yields for the 91-day and 182-day treasury bill were 6.6877 per cent and 6.7368 per cent, respectively.

Twelve state government has announced the auction of State Development Loans (SDL), 2016 for an aggregate amount of Rs. 3,724.21 crore using multiple auction method on February 27,2006. The Twelve State government that announced this auction comprises of Assam , Goa, Kerala, Madhya Pradesh, Maharashtra, Punjab, Rajasthan , Sikkim and Tamil Nadu.

Secondary Market

During the week, the call rates ranged between 6.81 per cent and 7.05 per cent. The daily average outstanding amount in the LAF reverse repo operation conducted during the week stood at Rs. 86 crore as against Rs. 17,527 crore for LAF repo auctions.

Bond Market

Corporation Bank is planning to raise Tier-II capital tot he extent of Rs. 500 crore in one or more tranches. The bank is also planning to raise resources by issuing infrastructure bonds to the extent of Rs. 1,000 crore in one or more tranches.

Canara Bank is coming out with a Tier-II issue of subordinated bonds in a bid to raise an aggregate amount of Rs. 30,000 crore lakh, with an option to retain oversubcription worth Rs. 12,500 lakh.

Foreign Exchange Market

During the week, the rupee moved between Rs. 44.40 and Rs. 44.56 per dollar. After beginning the week at Rs. 44.43 per dollar as compared to Rs. 44.46 on February 17, it depreciated to Rs.44.56 in the middle of the week before closing the week at Rs. 44.45 per dollar. The six-month forward   annualised premia fell from a high of 2.44 per cent at the start of the week to a low of 2.23 per cent by the close of the week.

Commodities Futures Derivatives

The Ministry of Consumer Affairs, Food and Public Distribution has constituted a task force under the chairmanship of Dr. L.C.Gupta to examine the issues and recommend measures relating to introduction of options trading in commodities. The committee will study the impact of options on commodity markets in general and its impact on the agricultural commodities, in particular. The committee is to submit its report by the end of April or early May.

Following the directives issued by the regulator FMC, NCDEX has set up a three-member committee headed by Justice P.N. Bhagwati to investigate the urad and chana price manipulation issue

The Center government has asked the coffee board to take steps to double coffee consumption in the next 10 years, following concerns over the stagnant domestic consumption. Out of the total coffee consumption, 802 per cent id exported and 20 per cent consumed domestically. Subsequent to this, the board is likely to follow innovative models and marketing strategies to boost domestic consumption.

Speaking to the media on the sidelines of a conference on ‘Energy Derivatives and Emission Trading’, Mr. S. Sundareshan, Chairman of FMC said that the bill pertaining tot the amendments to the Forward Contract Regulation Act, 1952, is expected to come up for its passage during the ongoing budget session in Parliament. It would allow trading in natural gas, electricity and emission on commodity exchanges. Further, he also said that the regulator would soon work towards reducing the number of illiquid contracts in the commodity trading.

NMCE is expected to launch futures trade in the 7mm Aleppey Green Extra Bold (AGEB) cardamon variety, which will run concurrently with the present contract for the 6mm AGB variety. The contract has been designed to follow the parameters like the Agmark special grade with 435 gram per litre weight. The trading unit would be one quintal and moisture content 11 per cent.

On February 21, MCX and NYBOT have signed a Memorandum of Understanding (MoU) to explore areas of cooperation that could mutually benefit both the exchanges. Accordingly, the exchanges have agreed to work together to develop areas of cooperation and business opportunities with goals of assisting and benefiting the underlying producers, end-users and investors of these products, achieved by maximising the application of international best practices for price risk management and exchange operations.

CREDIT RATING

Crisil has assigned a provisional rating of 'AA (so)/Stable' to Rs. 4001 million Series-A pass through certificates (PTCs) backed by loan receivables from Tata Industries Limited, originated by Citicorp Finance (India) Ltd (CFIL).

Crisil has reaffirmed the ‘P1+’ rating assigned to Rs. 250 million short-term debt programme of Kennametal India Limited. The rating continues to reflect its leadership in the domestic carbide tools industry, which is supported by its superior technology, large product mix and distribution network, and strong brand equity.

Crisil has reaffirmed the ratings  ‘P1+’ and ‘A+/Stable’ assigned to Ford Credit Kotak Mahindra's (Ford Credit India's) Rs. 2.5 billion short-term debt programme and Rs. 350 million non-convertible debentures programme. This rating reaffirmation follows the company’s decision to restructure its operations by moving move its wholesale dealer financing operations to Ford India Limited as a separate division. The rating also draws reflects the adequacy of the liquidity plan put in place by Ford Credit India to meet all its existing debt obligations fully and in a timely manner.

Crisil has reaffirmed the 'P1+' rating on Ranbaxy Laboratories Limited's (Ranbaxy's) commercial paper programme following the company's recent announcement of a foreign currency convertible bond (FCCB) issue of US $440 million. The agency has treated the FCCB issuance as debt on Ranbaxy's books. Although the significant size of the FCCB issue (39 per cent of capital employed as of December 31st 2004) will increase the company's gearing, the zero-coupon nature and five-year tenure of the FCCB issue result in a comfortable liquidity profile. Hence, the overall financial profile of the company remains comfortable for its rating category.

Crisil has assigned ‘Aaf’ rating to Deutsche Money Plus Fund The assigned rating indicates that the portfolio holding of Deutsche Money Plus Fund provides strong protection against losses from credit defaults. The Fund is managed by Deutsche Asset Management ( India ) Private Limited (DAMIPL). The rating is not an opinion on DAMIPL's willingness or ability to make timely payments to investors or on the stability of the Fund's net asset value, since these could vary with market developments.

Crisil has reaffirmed the ‘AAAf’ rating to the Cholamandalam AMC Limited’s three different funds, viz., Chola Triple Ace, Chola Liquid Fun d and Chola Freedom Income- short term fund. The assigned ratings indicate that the portfolio holdings of all the three funds provide very strong protection against losses from credit defaults.

Crisil has reaffirmed the ‘P1+’ rating on the Rs.1000 million short-term debt programme of Radha Madhav Investments Limited.  The rating reaffirmation follows the announcement by Gujarat Ambuja Cements Ltd. that Holderind Investment Ltd. has acquire 14.8 per cent stake from promoters, the Neotia and Seksaria families. The rating also derives strength form the company’s undertaking to maintain liquidity at all times, in the form of liquid funds of at least 1.2 times the outstanding total debt on its book.

Icra has assigned an ‘LAAA’rating to the proposed Rs. 4.25 billion subordinated bonds programme of Canara Bank. The agency has also assigned ‘LAAA’ ratings to various outstanding long-term subordinate debt programmes of Canara. The ratings take into account substantial provision, made on account of Canbank Financial Services Ltd. (Canfina), its subsidiary and the low probability of further impact on Canara Bank’s profitability. The bank’s important position in the Indian financial system as the fourth largest bank in terms of assets and the Government of India’s majority ownership of the bank also support the ratings.

Icra has assigned a ‘LAA’ rating to the Rs 300 million (enhanced from Rs. 250 million) long-term debt programme of Global Trade Finance Limited (GTF). The agency has also reaffirmed the ‘A1+’rating to the Rs. 7,500 million short-term debt programme of GTF. The ratings take into account the company’s relatively short track record, low but improving profitability, adequate capitalisation and comfortable liquidity as well as the challenge it faces to continue to increase volumes in a competitive business environment while simultaneously maintaining asset quality and interest margins.

Icra has assigned a ‘A1+’ rating tot he proposed Rs. 2.50 billion commercial paper programme of Adlabs Films Limited. The rating action takes into account Adlab’s market leadership in the hindi film processing industry and its growing coverage in the film exhibition business in the multiplex segment

Following the reported outbreak of the bird flu, Icra has put the ‘A1+’ rating assigned to short-term debt programme of Venkys India Limited, on rating watch with development implications. Subsequent to the outbreak local governments in the affected areas have implemented orders for the culling of poultry birds and restriction on transportation of poultry products. The outbreak has also had an impact on the consumption and sales of chicken meat. The agency would evaluate the impact of these events on the operating and financial profile of the company.

Icra has assigned an ‘LAA’ rating to the Rs. 0.75 billion non-convertible debenture programme of Finolex Industries Limited (FIL). The rating factors in FIL’s leading and established market position in PVC pipes and PVC resins, the buoyant demand for PVC products, and FIL’s favourable financial profile characterised by strong profitability and low debt levels

Icra has assigned an ‘LAAA’ rating to NTPC Limited’s Rs. 10 billion bond issues. Also, the agency has reaffirmed the ‘LAAA’ rating assigned to Rs. 20 billion outstanding bond issue of NTPC. The agency has also assigned an ‘IrAAA’ rating to the issuer rating of NTPC. The above ratings reflects NTPC’s dominant position in the Indian power sector, a very diversified customer base and its cost competitiveness, arising out of superior operational efficiencies and proximity of its coal-based plants to pit heads as well as the company’s strong financial position.

Fitch has upgraded Crompton Greaves’ National long-term rating to ‘AA- ( Ind )/Stable from ‘A+ ( Ind )/Stable. Simultaneously, the agency has also upgraded the national rating assigned to the company’s Rs. 200 million non-convertible debentures programme to ‘AA- (Ind)’ and has also affirmed the company’s Rs. 1000 million short-term commercial paper programme at ‘F1+(Ind)’.

CORPORATE SECTOR

Israyal based Ness Technologies has acquired Innova Solutions, a Santa Clara and Hyderabad based information technology services and solutions company for $ 25 million. The acquisition will enable Ness to get a foothold on the banking financial services and insurance segment and extend services to the European and Asia-Pacific markets.

Wipro has signed an agreement to acquire cMango Inc of USA for $ 20 million.

Kemwell, Bangalore based formulations contract manufacturer, has acquired a manufacturing factory of Prizer in Uppsala , Sweden .

Siemens Limited has signed a Memorandum of Understanding (MoU) with Babocock Borsig Limited to acquire a 50 per cent share in Flender Limited, a leading company in industrial gearboxes, for around Rs 65 crore.

Lyka Labs Limited has entered into a MoU with Pune based Serum Institute of Indian Lmited, for manufacturing and developing freeze dried products.

Mahindra Engineering Services, a part of the Mahindra and Mahindra group, would set up Mahindra Research Valley in Chennai with an initial investment of Rs 500 crore and will be focused on automobile and aerospace engineering and design services.

Jindal Stainless Limited has formed a wholly-owned subsidiary in UK and is planning another in Dubai .

Bharat Heavy Electricals Limited has commissioned the country’s biggest solar-diesel hybrid power plant at Bangaram island of Lakshadweep .

Aurobindo Pharma Limited has terminated its 50:50 joint venture agreement with Citadel Fine Pharmaceuticals Limited in Citadel Aurobindo Biotech Limited on the back of huge losses.

Apollo Tyres Limited has ventured into the healthcare segment with an investment of Rs 250 crore to set up a 500-bed hospital. The venture to be known as Artemis Health Sciences Limited would be a subsidiary of Premier Tyres Limited.

Nagarjuna Constructions has secured three new orders around Rs 243 crore. The first order from NTPC is valued at Rs 109.58 crore and the second order from the Chennai Metro Water Supply and Sewerage Board, at Rs 88.64 crore and third from AD Hydro Power Limited worth Rs 45 crore.

Gillette India has announced a 12.3 per cent increase in its net profit to Rs 68.7 crore for the year ended December 2005.

LABOUR

In line with the objective of the government’s National Common Minimum Programme (NCMP) to boost employment opportunities, the government is considering amendments to labour norms aimed at increasing working hours, allowing hiring of seasonal workers and making contract labour rules flexible. For this, some specific proposals are expected to be framed within the next four to five months. The centre has proposed to amend the Factory Act 1948 to extend the weekly working hours from 48 hours to 60 hours and daily working hours from 9 to 12 hours, so that the overtime limit can be extended. It has been noticed that despite workers’ willingness to work for longer time, the existing norms do not permit labourers to take more than two hours of overtime. Additionally, in order to meet the seasonal demands of export-oriented industries like the textile sector, an amendment to the Industrial Disputes Act 1947 has also been planned to facilitate employment of seasonal workforce. The proposed amendment, however, needs to ensure that there is no reduction in the existing workforce and that temporary employees do not exceed a stipulated level of the permanent workforce. Furthermore, as indicated by the Prime Minister in the 40^th National Labour Conference in December 2005, the government is also considering an amendment in the Contract Labour Act in specified non-core activities in tune with modern outsourcing activities.    

HOUSING

The country’s largest bank, the State Bank of India has finally announced that it is raising the home loan rates – fixed and floating. The fixed interest rates will be raised by 0.50 – 0.75 per cent and floating rates will be up by 0.25 – 0.50 per cent with effect from March 1, 2006. The interest rate uncertainty has also prompted the bank to withdraw fixed rate on loans of more than 10 years. Currently, it charges 9.25 per cent fixed interest for loans above 15-20 years, from March 1, 2006, it will not offer any fixed rates for loans exceeding 10 years. The hike in home loan rates comes close on the heels of other banks and housing finance companies also increasing the rates of interest.

TELECOM

National and international long-distance call charges are set to fall considerably as the Telecom Regulatory Authority of India (TRAI) has announced a sharp cut in access deficit charge (ADC) – a levy paid by telephone users to fund BSNL’s rural telephony. As a result consumers can expect 45-75 paise reduction in STD charges and at least Rs 2 per minute reduction in ILD charges, however, BSNL is likely to suffer an annual revenue loss of about Rs 2,000 crore. For STD calls, now the telecom companies will pay 1.5 per cent of their annual adjusted gross revenue as ADC against 30 paise per minute at present. Operators’ revenue from rural subscribers will be exempted from revenue-share. Trai has retained the per-minute ADC for international calls, but reduced it to 80 paise per minute for outgoing calls and Rs 1.60 per minute for incoming calls. In addition, international long-distance operators will share 1.5 cent of revenue as ADC.  Termination charge, however, has been retained at 30 paise per minute in both mobile and fixed line phones. The new norms come into effect on March 1, 2006 and will reduce the total ADC amount to Rs 3,335 crore from about Rs 5,340 crore at present. According to Trai estimates, of the Rs 3,335 crore ADC collection, BSNL will get only Rs 3,200 crore, as private operators have been allowed to retain the ADC they collect on all STD calls and outgoing international calls from their fixed-line customers. Trai also added that the ADC regime would be eliminated by 2008-09. All leading private operators, including Bharti, Reliance Infocomm and Idea Cellular, have said that the reduction will be passed on to subscribers. Telecom industry analysts have estimated that if the entire reduction is passed on to subscribers, STD tariffs can reduce by up to 35 per cent and ISD by about 25 per cent. In addition, the new mechanism would make it simpler to calculate ADC as compared to the current system. The new regime, however, comes as a blow to BSNL whose ADC-based revenues will go down from Rs 4,800 crore (out of total ADC collections of Rs 5,300 crore) in 2005-06 to Rs 3,200 crore in 2006-07.

Trai will be issuing its order on number portability within a month's time. Number portability allows subscribers to switch service providers without changing their phone number. Currently, consumers are being forced to stick with their operators despite poor service. Countries like Hong Kong , UK , Australia , US, Germany , France , Netherlands and Singapore provides number portability. These countries introduced it between 1997 and 2003. Netherlands decided to implement number portability when its mobile penetration was only 10 per cent. Even Pakistan , with a mobile penetration of just 6.9 per cent, is planning to introduce it shortly. In nearly all nations that have attempted number portability there has been a long time gap between notification and actual implementation. India will not be an exception, fears Trai since its own powers end at making recommendations and the government's begin from there. The final time-frame of implementing number portability vests with the latter. The key problem in implementing number portability is that operators are not keen on making the additional expenditure on establishing and maintaining databases, conditioning existing networks, upgrading network switches and modifying existing software so that the number can be transferred from one operator's network to another. The industry as well as Trai officials concede that this expenditure required is huge. Operators fear that they stand to lose subscribers. The Association of Unified Telecom Service Providers (Auspi), in its response to the Trai's consultation paper on number portability, had stated that it should be first introduced in the fixed line segment since there's hardly any competition there with the incumbent commanding an 89 per cent market share. It had also stated that since telecom is a highly taxed sector in India expenditure relating to number portability would only increase the cost for the operators. Similarly, the Cellular Operators Association of India (COAI) had also expressed apprehension on cost escalation, saying it would be detrimental to lowering tariffs and may affect the rising subscriber base. COAI had suggested appointment of an independent consultant to suggest a cost-benefit analysis.

*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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