Current Economic Statistics and Review For the Week 
Ended April 1, 2006 (13^th Weekly Report of 2006)

Theme of the week:

Growing Size of the Services Sector in the Indian Economy: 
Need For a Fresh Look at the Data Base*

1.  The question

            A dominant but apparently intriguing aspect of India ’s growth performance has been the high and steady contribution of the ‘services’ sector.  As per official estimates, irrespective of the extent of the rise in agriculture and industry GDP, GDP originating in the ‘services’ sector has maintained an impressive growth rate, now of over 8 per cent during the past decade or so (1993-94 to 2004-05) in contrast to an average growth of 2 per cent per annum in agriculture and a little less than 7 per cent per annum in industrial GDP.  As depicted in the accompanying graphs (Graphs A,B,C and D), the annual rates of growth in the ‘services’ sector have always ruled significantly above the growth rates of agriculture and industry and have also remained more stable.  As a result, the share of the ‘services’ sector in aggregate GDP has shown a progressive rise from 42.3 per cent in 1993-94 to around 52 per cent in 2004-05. 

            Two distinct questions have arisen with regard to the growth of the tertiary sector in the economy.  The first one concerns the tenability of the sector’s growth far beyond the real sectors’ growth and, that too, persistently in a secular fashion, particularly after the beginning of the 1980s. The second question relates to the misgivings entertained by many regarding the quality of estimation of ‘services’ sector GDP as the data base depended on for the purpose is apparently weak.  Implicit in the first question are both, the quality of data and the economic explanation for the given relative growth of the sector.  The latter question would obviously raise theoretical and historical issues and issues of the tenability of the country’s experience in this respect at this stage of her development.  Apart from the infrastructural requirements including construction activities and supply-leading financial, professional and business services, I would also venture to state, that some part of the impetus for the growth of the services sectors arises from the gross unequal distribution of incomes and assets including unearned and unreported incomes and assets which provide the thrust for luxury and conspicuous consumption on a dominant scale; they generate huge demand for a variety of services.  The phenomenal growth of information and communication sectors have added to the buoyancy in the services sectors.  The financial services have received an impetus from all of these activities.  Before these substantive questions are sought to be answered, it is felt necessary to examine the estimational issues, the issues concerning the quality of data base and the nature and, if possible, the extent of data gaps embedded in the estimation of various  components of the ‘services’ sector. A clear insight into the working of the Indian economy and its growth scenario now hinges on the quality of the data base and strength of value added estimates for different segments of the services sector.  The Central Statistical Organisation (CSO) and the National Sample Survey Organisation (NSSO) have been making earnest attempts in recent years to improve the data base particularly for the informal sectors.  Even so, the issues raised above require renewed attention only in the spirit of offering constructive suggestions for their further improvement.

            Therefore, EPWRF and IGIDR have proposed to organise a seminar with the essential focus on the estimational issues concerning real GDP originating in different components of the services sector in India , the kinds of data gaps the official compilers face and what could be done to bridge the gaps.  The present note is intended to serve as a theme paper for pinpointing  issues for consideration and study in the research papers sought for, and deliberations at, the proposed seminar.

2.  The method of estimation and possible misgivings

            The method of estimating GDP relating to the ‘services’ sector is widely known (CSO, 1999; Kulshreshtha and Singh 1999; and NSC 2002).  Briefly, of the seven major industrial categories for which the Central Statistical Organisation (CSO) regularly publishes the GDP series, four comprise the ‘services’ sector, namely, (i) trade, hotels and restaurant; (ii) transport, storage  and communication; (iii) financing, insurance, real estate and business services; and (iv) community, social and personal services.  Under each of these categories, there are very many sub-categories such as, ‘trade’, on the one hand, and ‘hotels and restaurants’, on the other, or ‘financing’, ‘real estate’ and ‘business services’, or in transport, the railways, road transport and transport by other means. Table 1 sums up their relative share within the ‘services’ sector.  Amongst various subcategories, ‘trade’ constitutes the largest segment with above 28 per cent share in the total value added in the services sector followed by “other services” (14.5 per cent).

             Again, amongst each of these categories/sub-categories, there are units operating in all the three institutional sectors: public and private corporate sectors (together constituting the organised sector) and the unorganised (household) sector.   But, recognisedly a large part of the economic activities in the services sector is carried out in the unorganised segment of the economy  (Kulshreshtha,  et al  2002, p.13;   see  also  Tables 17(a) to 17 (d)  in  NAS  2005]. 

No doubt, the organised segment of the services sector is growing relatively at a faster rate but that growth  is still slow, and as a result, the share of the organised segment has edged up from 47.1 per cent in 1993-94 to 53.1 per cent in 2002-03 or that of the un-organised segment has fallen only slowly in this ten-year period from 52.9 per cent to 46.9 per cent in total NDP (Table 3 below).

            To describe the existing estimation procedure: 

            “The estimates of GDP are prepared for the organised and the unorganised segments separately.  Within the organised segment, the estimates for the public sector are based on current data and are reliable.  In the case of the private corporate sector, the estimates are based on data from the Reserve Bank of India (RBI) sample studies on finances of medium and large public and private limited companies.  Such data become available after considerable time lag and in the absence of current data, the estimates are built up on the basis of growth in the paid-up capital. In any case, the RBI sample of companies is both small and non-random and the estimates for the universe are finally prepared by blowing up the results on the basis of paid-up capital.  For the unorganised part of the activity, only the benchmark estimates are prepared using the estimates of the value added per worker (derived from the results of the follow-up surveys of the Economic Census) multiplied by the number of workers in the respective services.  These benchmark estimates are thereafter carried forward with the help of suitable sector-based indices.  Even in this case, the follow-up survey years are not coterminous with the benchmark year and this compounds the error in the estimates (Kulshreshtha and Singh 1999, p.137).

            The quality of the data base are thus admittedly weak in respect of: (i) private corporate sector; and (ii) the un-organised part of each of the ‘services’ sector activities.  In respect of the second category, questions have been raised on two crucial components involved in the end results: work force estimates and estimates of value added per worker based on Enterprise Surveys as follow-up of the quinquennial Economic Censuses, which are used to estimate the benchmark estimates.  There is also the third component, namely, the chosen sectoral indicators used to carry the benchmark estimates forward for the recent years1.

            The most controversial components of the above estimation procedure are: (i) the estimates of the number of workers employed in each area of activity (CSO 1999a; Kulshreshtha, Singh, Kar, and Mishra 2000 and Kumar and Sharma 2001); and (ii) results of the Enterprise Surveys providing estimation of average value added per worker for the corresponding areas of activity (Kulshreshtha and Singh 1999; Kar, Singh and Kulshreshta 2003; Subba Rao 2004; and Kumar and Sharma 2004).  Various studies cited have raised serious questions on the reliability of different estimates.  With a view to improving the quality of estimates, the CSO/NSSO have carried out 12 follow-up (Enterprise) surveys and brought out 27 reports for different activities, mainly for covering the unorganised segment of the services sector (Appendix A).  But, the questions about the representative character of these sample survey results and their dependability for the purpose in view, have generally come into disrepute.  For survey and estimation purposes, the unorganised segment is divided into three categories based on the size of the workforce: directory establishment (DE) – employing more than 5 workers with at least one worker, hired on a fairly regular basis, non-direct establishment (NDE) – employing 1 to 5 workers with at least one hired worker, and own account enterprises (OAE) – employing no hired worker.  The estimates of relative shares of these categories in the workforce engaged  in the economic activity as well as the respective GVAPW estimates are used for estimating of GVA in national accounting (Kulshreshtha, et al, 2002, p.18).  Similarly, allegedly there are gaps in the estimation procedure for the private corporate sector, particularly in terms of the representative character of the sample and the variable (i.e., paid up capital) chosen for blowing up purposes.

            Two sets of tabular data (Tables 2 and 3) presented here become a useful starting point to raise issues for study and debate.  Table 2 depicts the sizeable increase in the share of the ‘services’ sector in total NDP from 43.3 per cent in 1993-94 to 52.3 per cent in 2002-03, which as stated above may pose questions of over-estimation.  On the other hand, the absorption of large labour force (as a residual or push factor from the real sectors), there may be misgivings that the ‘services’ sector incomes are underestimated (Kansal 1992).  As shown in Table 3 and as referred to above, the share of the unorganised sector in total NDP has fallen from 52.9 per cent in 1993-94 to 46.9 per cent in 2002-03, though the impressionistic perception is that the vast expansion in labour force gets absorbed in the unorganised segment of the services sector.

3.  The issues for study

            In view of the above, the entire methodology of estimating GDP originating in different segments of the ‘services’ sector requires a close look.  It is necessary to seek answers to the following issues:

(i)                  First, the method of workforce estimates, applying the worker-population ratio (WPR) of NSS to the population projections made by the Registrar General of India (RGI), may have to be given a fresh look. 

(ii)                Second, are there methods of validating the results of the various Enterprise Surveys in regard to estimates of value added per worker?  Such critical evaluation of these results, separately for trade and other segments of the services sector, will alone bring out their usefulness for national income purposes. 

(iii)               Third, what about the representative character of the follow-up ( Enterprise ) surveys, the results of which are constantly found wanting insofar as the national income estimates are concerned?  An examination of their inherent sampling and non-sampling errors is required to be carried out. 

(iv)              Fourth, there are a series of secondary indicators which are employed for carrying the benchmark estimates forward, which may also be critically evaluated.

(v)                Fifth, a critical review is required of the method of estimation of the private corporate sector’s contribution to the GDP of the ‘services’ sector. This has very often raised the question of the representative character of the sample and the variable chosen for blowing up purposes. Has there been any progress in resolving this long-standing issue?

(vi)              Sixth, financial services are a special category and the coverage of the unorganised segment in them appears weak even as this segment is said to be growing.  A comprehension study of the financial services sector is called for.

(vii)             There is the most complex question of deflating the services sector output, obviously separately for each of the segment.  Is there scope for revising the existing methods in this respect?

Finally, there may be other incidental issues, the examination of which may help in understanding the dynamics of the various estimational procedures.

            Before we conclude, we ought to make a mention of a new development in this area. The Working Group under the Chairmanship of Prof. Abhijit Sen, which has been set up to revise the WPI (from base 1993-94=100 to 2000-01=100), has recommended to develop a ‘Services Price Index’ for the selected service sectors, which will facilitate to approximate real output of various services in the national accounts framework. Therefore, the Office of Economic Adviser, Ministry of Commerce and Industry has undertaken the task to develop ‘services price indices’ as per the best international practices. The ten services, which have been identified to be included in the index are: road transport, railways, air transport, port, banking, insurance, posts, telecommunication, business services and trade services.       

Possible Documents for References

Arun Kumar A V, B P Vani, and Vinod Vyasulu (1994): ‘Structure of Employment as Seen from 1981 and 1991 Censuses: A Preliminary Look’, Economic and Political Weekly, September 23.

CSO (1999): Working Force Estimates – 1993-94, A Methodological Note, National Accounts Division, Ministry of Planning & Programme Implementation, March

-(1999a): New Series on National Accounts Statistics (Base Year 1993-94), Ministry of Planning & Programme Implementation, May

-(2005): National Accounts Statistics, May

-(2006): New Series of National Accounts Statistics (Base Year 1999-2000), February 28.

Hansda, Sanjay Kumar (2002): ‘Services Sector in the Indian Growth Process: Myths & Realities’, The Journal of Income and Wealth, IARNIW, Vol. 24, No.1 & 2, January-December

Kulshreshtha, A.C and Gulab Singh (1999): ‘Services Sector in National Accounts:           Methodology, Data Quality, Gaps and Possibilities of Improvement’, The          Journal of Income and Wealth, IARNIW, Vol. 21, No.2, July

Kulshreshtha, A.C and Gulab Singh, Aloke Kar and R.L. Mishra (2000): ‘Workforce in     the Indian National Accounts Statistics’, The Journal of Income and Wealth, IARNIW, Vol. 22, No.2, July

Kulshreshtha, A.C, Aloke Kar and Gulab Singh, (2002): ‘Enterprise Surveys  in the Improvement of Indian National Accounts Statistics’, The Journal of Income and Wealth, IARNIW, Vol. 24, No.1 & 2, January-December

Kansal, S.M. (1992): ‘Contribution of  ‘Other Services’ Sector to Gross Domestic Product in India ,:An Evaluation’, Economic and Political Weekly, September 19.

Kar, Aloke, Gulab Singh and A.C. Kulshreshtha, (2003): ‘Estimates of Value Added per   Worker from Enterprise Surveys - Cross-Validating Results, Economic and            Political Weekly, December 27.

Katyal, R.P  and L.P. Rai (1999): ‘Under/Over Estimation in the New Series of National Income and Related Macro-Economic Aggregates’, The Journal of Income and Wealth, IARNIW, Vol. 21 No.1, January 

Kumar, Sanjay and N K Sharma (2002): ‘Workers in Census 2001: Some Pertinent Issues’, Economic and Political Weekly, May 4.

Kumar, Sanjay and Naresh Kumar Sharma (2004): Some Methodological Issues Regarding Measurement of Contribution of Unorganised Non-Agricultural Sector in the Domestic Product, A paper read at the twenty-fourth Conference on Income and Wealth, Organised by IARNIW jointly with Directorate of Economics and Statistics, Government of Tamil Nadu, November 5-7

Ministry of Statistics and Programme Implementation (2005): Activities of the Enterprise Survey Unit of CSO, Government of India , Website:http://mospi.nic.in/t20.htm

NSC (2002): Report of the National Statistical Commission, Vol. II, Government of India .

Subba Rao K.G.K. (2004): ‘Estimates of Value Added Per Worker’, Discussion, Economic and Political Weekly), February 14

Visaria, Praveen (1998): ‘Employment and Workforce in India : Implications for National Income Estimates’.

Appendix A

Activities of the Enterprise Survey Unit of CSO

1.         The Enterprise Survey Unit (ESU) of the Economic Census and Surveys Division of CSO is responsible for carrying out certain Follow-up Surveys relating to non-agricultural activities. For carrying out these surveys, Economic Census frame giving count of enterprises at village/block level is used for selection of sample villages/blocks to the extent feasible.

2.         Under the Follow-up Surveys, the activities of Mining & Quarrying, Manufacturing, Trade, Hotels & Restaurants, Transport, Storage & Warehousing and Services have so far been covered.

3.         Data in these surveys are collected by interview method. However, for enterprises maintaining books of accounts, information are collected on the basis of these records. A moving reference period is adopted for collection of most of the information to reduce the recall lapse. The survey period is generally of one year duration and this period is divided into 4 sub-rounds of three months each to fully capture the effect of seasonality.

4.         The detailed information collected in the Follow-up Surveys relate to employment, emoluments, fixed capital, working capital, receipts, expenses, source of finance, outstanding loan, etc.

5.         The ESU has so far carried out 12 Follow-up Surveys. In all 27 reports based on these surveys have been brought out. List of surveys along with the reports released is enclosed.

Source:     Ministry of Statistics and Programme Implementation (2005):  Activities of the Enterprise Survey Unit of CSO, Government of India , Website:http://mospi.nic.in/t20.htm

Highlights of  Current Economic Scene

AGRICULTURE

The central government is planning to introduce a system of integrated smart card for targeted public distribution system (TPDS) and other subsidy schemes for individuals and households during the XI five-year plan period (2007-11) to control the leakages and diversions of subsidised foodgrains and other items targeted at poor households. All purchases made by smart card holders would be electronically recorded and can thus be easily verified by government to check the leakages. The planning commission has constituted a working group to look into feasibility of the card. The card is introduced in the backdrop of a study on TPDS published by the planning commission in March 2005, which revealed that about 57 per cent of sucbsidised grains does not reach the target group, of which a little over 36 per cent is drained off the supply chain.

In order to encourage the export of fruits and vegetables, the Government of Rajasthan has decided to set up an exclusive "pack house" of international standards in Muhana vegetable mandi. The pack house, apart from cold storage facilities, would provide exclusive and modern packing facilities to all the perishable export items to the farmers. The construction cost of the project is expected to be around Rs 130 lakh while an additional Rs 194 lakh for electrical fittings and installation and another Rs 65 lakh for refrigerated transportation facilities.

According to Indian Oilseeds and Produce Exporters Association, groundnut exports during April 2005- November 05 have slid down to 0.8 lakh tonnes, a decline of around 22 per cent, against 1.03 lakh tonnes over the corresponding period of previous year following the inferior quality, high domestic consumption and strong competition posted by US, Argentina , China and Vietnam . Despite the fall in exports, production is likely to go up to 64.5 lakh tonnes in 2005-06 from 60.7 lakh tonnes in 2004-05. Earlier, the industry had expected a whopping 20 per cent growth in exports because of a bumper kharif crop in major producer states— Gujarat and Karnataka.

Drop in production of copra in the current season has pushed prices of both coconut oil and copra. Coconut oil prices have risen by 9.3 per cent to Rs 4,700-4,750 per quintal from the Rs 4,300 per quintal that was quoted at the beginning of the year. The supply of copra from centres such as Kozhikode and Malappuram districts has not yet picked up. As per the Coconut Development Board, the increase in consumption of tender coconut is another factor that has lead to shortage of coconut for copra producers. However, with the production of coconut picking up in Karnataka and Tamil Nadu by April 2006, the price is expected to fall in the view of increase in supply.

As per the latest projections by United Nations Food and Agriculture Organisation (FAO), the global trade in poultry products for 2006 would stand at 8.12 million tonnes against the earlier anticipation of 8.6 million tonnes owing to sharp decline in consumption following widespread incidence of bird flu across the world. The poultry product trade in 2005 was around 8 million tonnes. The detection of disease in over 12 countries in February 2006 has resulted in immediate and pronounced consumption decline in Europe and Asian countries. According to FAO estimates, total world consumption of poultry meat in 2006 would to be less by about 3 million tonnes to 81.8 million tonnes compared to the previous estimates of 84.6 million tonnes. This is expected to lower the international prices of poultry products, making exporters apprehensive about the export prospects of the poultry products.

INDUSTRY

Textiles

The basic customs duty on polyester chips, an input for the synthetic textile industry has been cut to 10 per cent from 12.5 per cent.

Automobiles

The basic customs duty on carbon black feedstock, an input for the carbon black and tyre industries has been cut to 10 per cent from 12.5 per cent.

INFRASTRUCTURE

Power

Maharashtra has been overdrawing 500 megawatts from the western grid, mainly to overcome its burgeoning power demand in the state. Despite carrying out a daily load shedding of 4,500 mw the Maharashtra State Electricity Distribution Company (MahaVitaran) is forced to overdraw power from the grid which is a serious threat to the grid security. The power deficit of the entire western region is around 6,000 mw. The state-run Power Grid Corporation (PGCL), which acts as western regional load dispatch centre, in a warning letter has asked MSEB Holding Company not to overdraw power from the grid below 49 Hz in order to avoid grid collapse.

Coal

The coal ministry has plans to allocate coal blocks to private sector mining companies having firm supply contacts with core sectors like cement, power and steel. At present, coal blocks are allocated to cement, power and steel companies, strictly for their captive use. Since 1993, 91 coal blocks have been allocated to captive users with total reserves of about 15 billion tonnes. Fresh allocation for 20 coal and 8 lignite blocks are to be undertaken shortly.

Roads

As much as 97.3 per cent of road-laying under the Golden Quadrilateral project and 12.9 per cent of the North-South and East-West corridors project are expected to be completed by April 2007. According to the Outcome Budget of the shipping and road transport ministry, 5,694 km of road-laying and four-lining out of a total of 5,846 kilometres will be completed in the next fiscal year.

INFLATION

The annual point-to-point inflation rate based on wholesale price index (WPI) has gone up to 4.28 per cent for the week ended March 11, 2006 from 4.02 per cent during the previous week. The inflation rate was at 5.40 per cent in the corresponding week last year.

The WPI in the week under review has increased considerably by 0.4 per cent to 197.5 from 196.8 in the previous week (Base: 1993-94=100). The index of primary articles’ group (weight 22.02 per cent) has declined by 0.2 per cent to 193.1 from the previous week’s level of 193.5, due to a substantial decline by 8.3 per cent in the price index of minerals, mainly due to lower prices of silica sand and iron ore.  The index of ‘fuel, power, light and lubricants’ group (weight 14.23 per cent) has risen considerably by 0.9 per cent to 314.7 from 312 in the previous week, due to the higher prices of furnace oil, bitumen, electricity and naphtha. The index of ‘manufactured products’ group constituting the maximum of 63.7 per cent of total weight, has also risen by 0.3 per cent to 172.8 from the previous week’s level of 172.2, due to higher price index of food products, textiles, rubber and plastic products, chemical and chemical products, non-metallic mineral products, base metals and ‘machinery and machine tools’.

The latest final index of WPI for the week ended January 14, 2006 has been revised downwards; as a result both, the absolute index and the implied inflation rate stood at 196.6 and 4.19 per cent as against their provisional levels of 197 and 4.40 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 Economic Survey 2005-06, the annual point-to-point inflation rate is expected to be around 5 per cent at the end of March 2006.

BANKING

ICICI Bank plans to cover 60 districts in 2006 and up to 200 districts in 2007. The bank has decided to set up at least one touch point within every 3-5 kms of rural and semi-urban areas. The touch point could be in the form of branches at the district level, franchisees at the block level and kiosks at the village level.

The Reserve Bank of India (RBI) has approved the Cosmos Co-operative Bank’s proposal to acquire three co-operative banks. The Cosmos Bank is acquiring two Gujarat based banks, namely, Co-operative Bank of Ahmedabad and Unnati Co-operative Bank and one from Andhra Pradesh named Annapoorna Mahila Co-operative Bank of Secundrabad. The acquisitions are expected to add 25 branches to the bank’s existing network.

The retail loan growth continues despite rising interest rates and the liquidity squeeze being faced by banks. ICICI Bank, the most aggressive among all the banks riding a retail lending boom, has seen its retail portfolio grow by about 70 per cent in 2005-06 so far. The country’s largest bank, State Bank of India (SBI), has seen retail loans playing a major role in its overall loan portfolio growth. The bank has, in fact, witnessed a 2 per cent drop in the growth of its loans to top corporates.

The finance ministry has cleared the performance-linked incentive scheme for close to eight lakh employees of the public sector banking industry. As per the scheme, an individual employee’s incentive can be up to 20 per cent of his annual emoluments. In other words, an employee drawing an annual salary of Rs 3 lakh can get up to Rs 60,000 annually in the form of incentives. The overall limit on the total outgo on account of cash incentives in a bank is capped at 1 per cent of the bank’s net profit. Based on the last year performance, SBI will be able to spend around Rs 43 crore on this package. Likewise, the ministry is expected to come out with a similar scheme for the CEO’s of public sector banks very soon.

PUBLIC FINANCE

The finance ministry is considering shifting to a regime of specific excise duties for petrol and diesel from the present system of a combination of ad valorem and specific duties. Such a shift in levy has been recommended by the Rangarajan panel on pricing and taxation of petro products as one of the ways to salvage the oil marketing companies from the current phase of  “under-recoveries.” The shift would however come with an hike in fuel prices. 

Politicians and bankers have been unanimous in their view that the centre’s proposal to provide farmers a short-term credit at 7 per cent with an upper limit of Rs 3 lakh would not only lead to increase in off-take but also curb farmer’s tendency to seek loan from the unorganised sector.

Consensus over distribution of services between the centre and the states for the purpose of taxation has eluded tax officials in the state. The empowered committee on VAT held the meeting of state commissioners of commercial taxes but even after over three-hour long meeting there was no general consensus on the issue. 

The finance ministry intends to prepare a discussion paper on the proposed introduction of EET (exempt at the stage of deposit, exempt at the stage of accumulation and taxed at withdrawal) to saving schemes like pension funds, provident funds etc. The discussion paper would be finalized after the budget session of the parliament.

National Council of Applied Economic research (NCAER) in its report had said that services tax will go up by 1 per cent per annum in the next four years, following the government’s decision to introduce goods and services tax from Apri 1, 2010.  

The I-T department found that the fraudsters recycled the same set of shares several times over.   

The Cost and Works Accountants (Amendment) Bill, 2006 has been enacted. The Cost and Works Accountants (Amendment) Bill, 2006 has been enacted. With the President signing the legislation and its gazette notification, it has come into force as Act No.7 of 2006. The Bill was passed by both Houses of Parliament earlier.

The necessity to amend the Cost and Works Accountants Act, 1959 arose following changes in the country’s economic and corporate environment over the years. The measure aims at providing professionals to the corporate sector to assess and analyse costs in a competitive environment and giving inputs to the regulators and the Central Government as and when needed.

The negotiations to conclude a Comprehensive Economic Partnership Agreement (CEPA) between India and Korea began with the first meeting of the India-Korea Joint Task Force (JTF) being held here on 23-24 March 2006. The JTF discussed the modalities of the negotiations. Seven Working Groups were constituted to carry out the negotiations in specific areas: (i) Trade in Goods, (ii) Trade in Services, (iii) Investment, (iv) Other Rules & Economic Cooperation, (v) General Provisions & Dispute Settlement Mechanism, (vi) Rules of Origin and (viii) Customs administration & procedures.

The Government and the Reserve Bank of India have taken various measures to facilitate the flow of credit to Small Scale Industries. These, inter alia, include enhancement in composite loan limit from Rs.50 lakh to Rs.1 crore, raising the project cost limit under National Equity Fund (NEF) Scheme from Rs. 25 lakh to Rs. 50 lakh, enhancement of eligible loan limit under Credit Guarantee Scheme from Rs. 10 lakh to Rs.25lakh, providing collateral-free loan upto Rs., 25 lakh to SSI Units having good track record, setting up of Small and Medium Enterprises Fund of Rs. 10,000 crore under Small Industries Development Bank of India (SIDBI), enhancement of credit limit under Laghu Udhyami Credit Card (LUCC) from Rs.2 lakh to Rs.10 lakh based on satisfactory track record etc.

Besides, the Government announced a ‘Policy Package’ for stepping up credit to small and medium enterprises on 10th August 2005.

Manganese Ore India Limited (MOIL), a mini-ratna public sector undertaking, today paid a dividend cheque for Rs. 10 crore to the Minister of Steel,

Chemicals and Fertilizers, Shri Ram Vilas Paswan here. The cheque was presented by MOIL’s Chairman-cum-Managing Director, Shri Kishan Lal Mehrotraa. It was an interim dividend for 2005-06.

With its headquarters in Nagpur , the company has a paid-up capital of Rs. 15.33 crore. The company’s shares are held by the Government of India to the extent of over 81%. The shares held by the Governments of Maharashtra and Madhya Pradesh are 9.62% and 8.81% respectively. MOIL has 10 mines in Maharashtra and Madhya Pradesh. Six of them are located in the Nagpur and Bhandara districts of Maharashtra and four in the Balaghat district of Madhya Pradesh. All of them are about a century old.

Manganese is an essential component of steel. MOIL is the largest employer in the manganese mining industry in the country with a total work force of 6900 employees. The company has shown good results over the years and is rated as a well managed public sector undertaking in the country.

Neyveli Lignite Corporation Ltd. (NLC) A Public Sector Unit of the Ministry of Coal today paid to the Government of India the second instalment of annual dividend (14 per cent ) for the year 2005-06 amounting to Rs.219.75 crore. The dividend cheque was presented to the Union Minister of Coal, Shri Shibu Soren by Shri S. Jayaraman, Chairman-cum-Managing Director in the presence of Union Minister of State for Coal, Dr. Dasari Narayana Rao, Coal Secretary, Shri H.C. Gupta and other senior officials of the Ministry. Earlier, NLC paid the interim dividend of 6 per cent amounting to Rs. 94.18 crore for the year 2005-06. The PSU has paid 20 per cent dividend amounting to Rs.313.93 crore to the Government of India for the financial year2005-06. It paid 20 per cent dividend of same amount during the previous year.

FINANCIAL  MARKET

Capital Markets

Primary Market

Tantia Construction Limited will be tapping the market on March 27, with its public issue of 1,12,50,000 equity shares with a price band of Rs 45 to Rs 50 per equity share. The issue closes on March 31.

R Systems International Limited will be tapping the market with its public offer of 4,408,355 equity shares and a price band of Rs 210 to Rs 250 per equity share. The issue opens on March 28 and will close on March 31.

Emkay Share and Stock Brokers Limited will tap the market on March 31 with their public offer of 62.5 lakh equity share with a price band of Rs 100 to Rs 120 per equity share. The issue will close on April 07

Secondary Market

The market sentiments were buoyant mainly on account of the government’s decision to set up a committee to review the policy of full capital account convertibility of the rupee. For the week ending March 24,the sensex gained 90.26 points or 0.83 per cent over its previous week’s closing value to settle at an all time closing high of 10,950.30. On March 21, sensex touched a life high of 1,1017.25 during the intra day trade, but it succumbed to profit booking and closed 50 points below the psychological 11000 mark. Meanwhile, during the week, S & P CNX Nifty also gained 45.75 points or 1.41 per cent to close at 3278.80 levels. Among the sectoral indices, the BSE Metal index registered the highest gain of 7.57 per cent as it settled at 8,183.52 points over its previous week’s closing value, following by BSE FMC at 3.37 per cent and health care at 2.49 per cent. While, BSE AUTO and BANKEX indices registered a decline of 1.53 per cent and 0.91 per cent, respectively.

Interestingly, when the sensex moved from 10,000 to 11,000 levels on March 21, the share of FIIs and mutual funds in the total cash turnover of both the stock exchanges was greater than ever before. The share of FII and mutual funds stood at 32.50 per cent and 9.10 per cent, respectively. Earlier, when the sensex moved from 9,000 to 10,000 levels, FIIs and mutual funds contributed lesser than their current contribution. While the share of FIIs was pegged at 27.19 per cent, the mutual funds were less than 9 per cent at 8.55 per cent.

As the BSE sensex breached the 11,000 level in the intra-day trading session on March 21, the market capitalisation to gross domestic product ratio has risen to 93 per cent on March 21from the earlier 84 per cent when the sensex touched 10,000 level on February 6,2006.

The recent suggestion by the RBI for an umbrella regulatory body to deal with the existing gaps and overlaps in the financial sector regulations have been disapproved by Sebi chairman. Admitting that the overlapping was taking place periodically, Sebi chairman said that the concept of lead regulator could be effective to resolve the issues.  

The net FII investment in the equity market up till March 24 has been around Rs 5,033 crore with purchases worth Rs 40,902 crore and sales of Rs 35,869 crore. Meanwhile, during the same period, in the derivative segment, they have been net sellers to the extent of Rs 4,178.25 crore with purchases of Rs 14,392.81 crore and sales of Rs 18,571.07 crore. While, they were net buyers in the options instruments to the extent of Rs 1,074.08 crore with purchases of Rs 1,384.57 crore and sales of Rs 310.49 crore.

Meanwhile, the mutual funds have been net buyers in the equity up till March 24 to the extent of Rs 2947.73 crore with purchases worth Rs 11017.95 crore and sales of Rs 8070.22 crore.

Sebi has given its in-principle approval to companies with substantial market capitalisation to remain listed even if non-promoter holdings fell below 25 per cent.

Derivatives

Given the buoyant sentiments prevailing in the market, the turnover at the NSE’s F & O segment has risen from Rs 121495 crore in the previous week to Rs 159393 crore; the daily average turnover has also risen to Rs 31878 crore from Rs 30373 crore in the previous week. As usual, stock futures contributed bulk of the trading with a total turnover of around Rs 97484 crore and index futures turnover stood at Rs 45750 crore.

Government Securities Market

Primary Market

The RBI has announced the calendar for the issuance of treasury bills for the period April 1, 2006 to March 31,2007. The notified amount for the 91-day treasury bill and 182-day treasury bill has been retained at Rs 500 crore and for 364-day treasury bill at Rs 1000 crore. Further, the issuances of treasury bills, if any, under the MSS would be in addition to the issuance calendar.

During the week, the RBI has, under regular auction, mopped up Rs 867.84 crore through 91-day Treasury bill and Rs 1162.14 crore through 182-day treasury bills. The cut-off yields for the 91-day and 182-day treasury bills were 6.5219 per cent and 6.6083 per cent, respectively.

Nine state governments have announced the sale of state development loan for an aggregate amount of Rs 1851.26 crore through a yield-based auction using multiple price auction method on March 27.

Meanwhile, the government has issued special oil bonds, viz., 7.07 per cent Oil Marketing Companies Government of India Special Bonds 2009 for Rs 2000 crore, 7.44 per cent  Oil Marketing Companies Government of India Special Bonds 2012 for Rs 2000 crore and 7.59 per cent Oil Marketing Companies Government of India Special Bonds 2015 for Rs 1750 crore,  to three Oil Marketing Companies to compensate them for under-recoveries in their domestic LPG and kerosene operations during the current financial year.

Secondary Market

During the week, tight liquidity following the advance tax outflows, concerns over the scheduled borrowing in the month of April as well as state loans announcement weakened the market sentiments. The call rates rose higher to 6.50-6.70 per cent as compared to 6.00-6.25 per cent in the previous week. The average daily subscriptions at the reverse repo auction fell to Rs 669 crore from Rs 4,378 crore in the previous week. Meanwhile, the amount received under the repo auction of the RBI’s LAF window averaged to Rs 21,413 crore as against Rs 2,798 crore in the previous week. The weighted average YTM on 8.07 per cent 2017 paper stood at 7.3872 per cent as on March 24 as compared with 7.4073 per cent as on March 17. Also, the 1-11 year YTM spread has increased by 9 basis points to 76 basis points.

The RBI has, on March 24, announced the indicative borrowing calendar, for issuance of government securities. The government would issue stocks worth Rs 89,000 crore for the first half of the fiscal year 2006-07. Meanwhile, the RBI has also set an annual ceiling of Rs 70,000 crore under the Market Stabilisation Scheme (MSS) for the year 2006-07 as compared to Rs 80,000 crore in 2005-06.

Bond Market

Corporation Bank has issued and raised Tier-II capital bonds for Rs 300 crore through private placement of unsecured, redeemable non-convertible, non-cumulative subordinated bonds in the nature of promissory note

Foreign Exchange Market

In the forex market, the sustained dollar demand by the corporates, strong overseas dollars as well as suspected RBI intervention weigh down the market sentiments. The rupee stood at 0.4 per cent weaker at Rs 44.63 per dollar from Rs 44.45 per dollar in the previous week. During the week, the rupee initially firmed against the dollar supported by the rally in the domestic stock market and a weak dollar in the overseas market. However, early month-end oil corporate demand and the dollar’s sharp surge in the overseas market in the later part of the week saw the rupee falling against the dollar.

The RBI has set up a committee to draw out a road map for the full capital count convertibility of the rupee. The committee, headed by S.S. Tarapore, will give recommendations after reviewing experiences gathered from various measures of capital account liberalisation so far. The committee will begins work from May 01,2006 and is expected to submit its report by July 31, 2006. Meanwhile, the six-month annualised forward premia stood at 1.92 per cent as on March 24 as compared to 2.45 per cent on March 17. 

Commodities Futures Derivatives

The government has, on March 21, introduced a bill in the Parliament with a view to give more space to the Forward Market Commission (FMC) to regulate commodity derivative market effectively. It seeks to restructure and strengthen the FMC on the lines of Sebi and make necessary amendments in the Forward Contracts (Regulation) Act, 1952.

Indian Coffee Exporters’ Association President has said that the exports are set to register a 10-year low in the current financial year on back of several factors including decline in production and hold over stocks by growers. Till date, the exports stood at 1,66,450 tonne, 15 per cent down from 1,96,210 tonne in the same period last year.

CREDIT RATING

Crisil has assigned ‘AAA’ rating to State Bank of Indore’s Rs 1 billion lower Tier II bonds, at the same time, the agency has also reaffirmed the ‘AAA/Stable’, FAAA/Stable’ and ‘P1+’ ratings assigned to the bank’s another Tier II bonds aggregating Rs 3.4 billion, its fixed deposit programme and the bank’s Rs 20 billion certificate of deposits programme. The ratings reflect majority ownership by and management support from the State Bank of India (SBI) and high integration levels with the parent. The ratings also reflect SBoI's healthy liquidity and resource profile, comfortable profitability, and lower non-performing asset (NPA) levels, compared with the industry average.

Crisil has reaffirmed the ‘AAA/Stable’ rating assigned to Rural Electrification Corporation’s Rs 110 billion (enhanced from Rs 90 billion). The rating reaffirmation continues to derive strength from its ownership by the government of India and its strategic role in rural electrification.

Crisil has assigned ‘P1+’ rating to the Rs 2.5 billion short-term debt programme of CanBank Factors Limited (CBL). Simultaneously, the agency has also reaffirmed the ‘FAAA/Stable’ assigned to the company’s fixed deposits programme. The rating agency has also withdrawn the ‘AA +/Stable’ rating assigned to Rs 250 million non-convertible debentures programme. The ratings on CFL continue to reflect Canara Bank's majority ownership of the company and its strong market position in the domestic factoring business. The ratings also reflect CFL's good capital adequacy and comfortable earnings profile.

Crisil has reaffirmed the ‘P1+’ rating assigned to INOX Air Products Limited’s Rs 250 million short-term debt programme. The reaffirmation is based on the strong management, technological, and financial support that INOX Air Products Limited (INOX) derives from Air Products and Chemicals, Inc. Further, the company's established position in the industrial gases segment and diversified revenue profile also provides support to the rating.

Crisil has assigned ‘AAA (SO)’ rating to the pass through certificates issued under Kotak Mahindra Bank Limited’s commercial vehicles loan securitisation programme. The ratings are based on the strength of the credit quality of the pool cash flows, Kotak Mahindra Bank Ltd's origination and servicing capabilities, the credit enhancement, the liquidity support, the payment mechanism for the transaction and the soundness of the legal structure.

Crisil has assigned an ‘AAA’ rating to the Rs 20 billion bond issue of National Bank of Agriculture and Rural Development (NABARD). The assigned rating derives comfort from the strong support that NABARD continues to receive form the government of India . The rating also derives strength from NABARD's favourable financial risk profile, which is evident in its strong capitalisation levels.

Care has retained the ‘PR1+’ rating assigned to the commercial paper programme of Rs 20 crore of Amtek India Limited. The agency has also reaffirmed the ‘AA’ rating assigned to the non-convertible debentures aggregating Rs 65 crore of the company. The ratings take into consideration the steady growth in income, adequate margins, comfortable coverage ratios and financial profile of the company. The ratings also draw comfort from the diversified clientele, sustained relationships with a large number of automobile companies as preferred original equipment (OE) supplier, implementation of recent expansions and buoyancy in auto ancillary industry.

Care has assigned an ‘AA+’ rating to the Rs 300 crore Tier II subordinated bond issue of Indian Overseas Bank. The rating factors in government of India ownership to a major extent, medium size, wide reach, and longstanding track record of profitable operations and good base of low cost deposits of the bank.

Care has reaffirmed the ‘AA’ rating assigned to Deccan Chronicle Holdings Ltd’s (DCHL) outstanding 6.50 per cent secured non-convertible debentures aggregating Rs 57.50 crore, following a review of DCHL’s recent developments and performance. Further, the agency has also retained the ‘AA’ rating assigned to DCHL’s outstanding 6.58 per cent secured non-convertible debentures aggregating Rs 50 crore. The ratings factor in DCHL’s leadership position of its flagship publication “Deccan Chronicle” (DC) in Andhra Pradesh, successful implementation of its modernisation cum expansion project. The ratings also factor in the DC’s successful run in Chennai since its launch in March 2005.

Icra has assigned a ‘LAA (SO) rating to the Bangalore Development Authority’s (BDA) proposed bond programme aggregating Rs 500 million. The rating takes into account the BDA’s role as the planning and development authority for the BMA, its profitable site development activity, and financial flexibility derived from comfortable cash balances and a healthy stock of auction sites. The rating also factors in the increasing number of infrastructure projects being undertaken by the BDA and also the rising land acquisition and development costs.

Icra has reaffirmed the ‘A1+’ rating to the Rs. 50 million commercial paper programme of Kyungshin Industrial Motherson Limited (KIML). The rating factors in its sole supplier position with Hyundai Motor India Limited (HMIL), its growing volumes driven by HMIL’s strong position in the domestic passenger car business, its improving profitability, low gearing and healthy coverage indicators.

CORPORATE SECTOR

The Mahindra Group has signed an agreement with the Maharashtra government to invest Rs 2,000 crore to develop a 3,000-acre special economic zone (SEZ) at Karla near Pune. The SEZ will be developed as a joint venture with the Maharashtra Industrial Development Corporation (MIDC), and is expected to be fully operational in five years. The MIDC would pick up a 26 per cent equity share in the project.

Chamble Fertilisers and Chemicals Limited has signed a shipbuilding pact with South Korea ’s Hyundai Heavy Industries company Limited; as per the agreement Chamble Fertiliser would build two afamax tankers (dead weight 1,05,830 mt each).

Hitech Entertainment has entered into an agreement with Geosoft Technologies to acquire 51 per cent shares in the company, thereby making it as a subsidiary.

Germany’s biggest cement maker Heidelberg Cement has entered into a 50:50 joint venture agreement with SP Lohia Group owned Indorama Cement Limited to pick up a 50 per cent share in Indorama’s 7,50,000 tonne grinding plant in Mumbai for an undisclosed amount.

Kerala Ayurveda Pharmacy has entered into a Memorandum of Understanding with Pacific Healthcare Holdings to establish a joint venture. The agreement will establish medical specialist centres across major cities in India offering medical services to major cities.

Signa Real Estates, and affiliate company of Ansal Properties and infrastructure has entered into a joint venture with Faber Facilities SDN BHD, a wholly-owned subsidiary of Faber Group Berhad, Malaysia for providing management services for commercial residential buildings, townships, shopping, airports, railway stations and hospitals in India.

Patni Computer Systems has signed a multi-million pound telecom contract with Carphone Warehouse , UK ’s largest retailer of mobile communications. The company will support Carphone`s delivery platform encompassing fixed line, wireless and Mobile Virtual Network Operator (MVNO) capabilities for the pan-European market.

US software giant Oracle has scaled up its share in i-flex solutions by 3.71 per cent. Oracle Global Mauritius, the company through which Oracle holds 43.08 per cent share in i-flex, purchased this additional share for a total amount of Rs 394 crore.

ChrysCapital, a private equity investor, has picked up 11 per cent share in Chennai based privately held Redington ( India ) for a consideration of Rs 67 crore.

Ashok Leyland is setting up two manufacturing units of which, one will make engines for heavy commercial vehicles and the other will make gear boxes, at a cost of Rs 250 crore. The company is also announcing voluntary retirement scheme to cut down the work force from 5,000 to 4,250 at its mother plant at Ennore in Tamil Nadu.

Tata Power Company is setting up a new 250-mega watt power plant at its Trombay thermal station with the total investment around Rs 860 crore.

Birla Power Solutions, a Yash Birla group company, is venturing into agricultural machinery. The company is planning to come out with its own line of agricultural machinery such as tillers and reapers. The company will set up two more plants adjacent to its existing plant at Haridwar in Utteranchal to increase its capacity in mid size gensets and inverters.

In January 2006, the Indian corporate sector raised a total of $ 1.79 billion through external commercial borrowings (ECB) and foreign currency convertible bonds (FCCB). Of the total funds raised, five companies used the FCCB route to garner $ 481.13 million, while others raised $ 1.31 billion via

ECB. Reliance Infocomm was the largest issuer of ECB’s at $ 500 million.

Gemini Communication, a wireless networking equipment company, will invest around Rs 25 crore in a new factory in Himachal Pradesh to manufacture radio frequency identification tags.

Torrent Group has merged three of its power companies namely, Torrent Power AEC Limited, a 93 years old integrated power generation, transmission and distribution company, Torrent Power SEC Limited, a 85 years old power distribution company and Torrent Power Generation Company, into one and named it as Torrent Power Limited.

LG Electronics India has shifted its entire export production to Pune. The company’s Noida plant will focus on the domestic market while the plant at Ranjangaon near Pune will cater to the export requirements.

EXTERNAL SECTOR

According to a study by Assocham, illegal trade between India and Pakistan has come down by 50 per cent on account of resumption of good relations and re-establishment of sea and railway linkages. This has been aided by the execution of Safta. Safta has brought about in the custom tariff and other trade related barriers between the two countries, reducing the transaction cost substantially. Therefore, illegal trade, which was estimated to be to the tune of $2 billion by the end of 2004-05 had come down to $1 billion by February 2006.

According to a study by Ficci, Indian exporters to the European Union (EU) are finding it increasingly difficult to comply with EU’s product and process standards.

The Reserve Bank of India has lambasted banks over unfair prising of loans disbursed from foreign currency non-resident deposits. According to banking sources FCNR deposits have grown following the redemption of India Millennium Deposits in December 2005. Liquidity shortage arising out of accelerating credit growth has provided scope for banks to manipulate lending rates.  FCNR deposits are offered at a rate of 25 basis points below LIBOR. However, these funds are lent to SME’s at 300-350 basis points over LIBOR.

According to textile ministries Performance Budget, FDI in the textile sector has declined sharply to $5.72 million during April-December 2005 as against $22.23 million witnessed during the same period previous year. Compared to a total of 17 FDI proposals approved during the three quarters of last year, this year there have been only 5 approvals.

Sharp differences between the commerce and finance ministries over the minimum area required for setting special economic zones, have prompted the government to re-constitute the group of ministers on SEZs. This ministerial group will take a re-look at the land size issue.

LABOUR

According to the Comptroller of Auditor General (CAG) report on autonomous bodies tabled in a parliament, the Employees Provident Fund Organsiation (EPFO) had spent Rs 9.32 crore on almost 20,000 gold coins on the eve of the golden jubilee of the Fund in 2003-04. Despite lowering of the interest rates on other administered savings schemes to 8 per cent by 2002-03, the Central Board of Trustees (CBT) of EPFO, decided to retain the interest rate at 9.5 per cent for 2002-03. For 2003-04, the CBT announced a golden jubilee bonus rate of 0.5 per cent on the effective rate of 9 per cent to keep the payable rate unchanged at 9.5 per cent. Since the income of the Fund was not enough to pay for 9.5 per cent interest rate, it had to dip into one of its reserves to bridge the shortfall. Surprisingly, the expenditure on gold coins was incurred during the same time. According to the report, the procurement and distribution of gold coins to the staff and members of CBT was in violation of the instructions of the Department of Expenditure. Moreover, the CAG report also mentioned that the eligibility criteria for grant of gold medallion was also against the standards of financial priority, especially as the scheme was intended to be in the nature of an incentive to the employees.     

TELECOM

Nokia, the Finnish mobile handset maker, announced that it had manufactured over 1 million GSM mobile handsets so far at its manufacturing facility in Sriperumbudur, near Chennai. The facility started commercial production on January 2, 2006. The manufacturing facility currently employs 1100 people and plans to scale up the headcount to over 2000 plus by the end of 2006. The Chennai facility, Nokia’s 10^th mobile handset facility across the globe, was a low-cost, high-volume manufacturing site with focused product portfolio and the most efficient mode of operations. In future, this facility would become an export centre. The plant would start export of mobile handsets to Southeast Asian region during the second half of this fiscal. However, a major part of the production would go to domestic market. At any point, the export would not exceed more than 30 per cent of the production.

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

LIST OF WEEKLY THEMES

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