Current Economic Statistics and Review For the Week 
Ended April 8, 2006 (14^th Weekly Report of 2006)

Theme of the week:

Services Sector Exports: Growth and Prospects**

One of the most significant developments in the 1990’s, pertaining to our exports of goods and services, has been a remarkable growth in services transactions with the rest of the world. Over the years, India has witnessed a structural shift in favour of services wherein the services sector has emerged as a key driving force behind growth. Share of services sector has risen gradually over the years and at present it constitutes around 54 per cent of the gross domestic product (GDP) of the country. This shift is also reflected in the external sector where services have increasingly gained importance over the period and India has emerged as one of the fastest growing exporters of services in the world outstripping the growth rate of industrial countries and also the world growth rate (RBI Annual Report, 2001-02). According to IMF’s Balance of Payments Statistics Yearbook, currently India is ranked 18^th among the world’s leading exporters of services, improving its ranking from 27 in 1990. Its share in total world export of services has stood at 1.3 per cent from a meager 0.6 per cent in 1990. The growth in export of services can be attributed to, apart from other reasons, trade liberalisation, information technology revolution and multilateral trade negotiations, which covered services apart from goods.

Among the various items of invisibles¹, services export receipts have risen from 46.7 per cent of total invisible receipts in 1995-96 to 64.1 per cent in 2004-05 and services receipts as per cent of total current receipts has doubled from 15 per cent in 1995-96 to around 30 per cent in 2004-05 (Annexure A). From a negative contribution to net invisibles in 1995-96, the share of net services export has moved up considerably and in 2004-05 it added 45.5 per cent to net invisibles as can be seen in Table 1.

India has not only become a major exporter of services, but it is also emerging as an important service importer. Imports of services by India have also increased sharply at an annual compound growth rate of 17.37 per cent between 1995-96 and 2004-05, although at a lower rate than receipts, which have risen at a compound growth rate of 22.59 per cent during the same period. Services import as a per cent of total current payments has risen from 13.4 per cent in 1995-96 to about 20 per cent in 2005-06 (Annexure A).

Profile of Services Export

Table 2 gives the profile of services export. Major heads of services in the India ’s BOP account, comprise travel, transportation, insurance, government not included elsewhere and miscellaneous services. These concepts will be explained in detail in the coming sections. It is clear from the table that in recent years, a sectoral shift within the spectrum of service exports has also taken place. The buoyant growth of professional, technical and business services under Miscellaneous have provided a cushion against the slowdown in traditional services like travel and transportation.

Travel

Travel represents all expenditure by foreign tourists in India on the receipts side and all expenditures by Indian tourists and visitors abroad (for detailed Travel account please refer to Annexure B). Travel receipts constitute second largest share in services receipts, though its share in total services receipts has fallen over time. Travel receipts are principally determined by the number of tourists visiting India during the period in question, although factors like social and political environment in India and abroad, cost conditions, etc, also have a role to play. Even though gross receipts from travel have shown a steady rise (except 2001-02, Table 3), there has been a deceleration in the rate of net receipts. This is because of a steady rise in payments under this account. This could be attributed to the fact that more and more of Indians are taking up foreign travel and business travel accounts for the largest payment made under this account. In 2001-02, there was a fall in number of tourists visiting India and also a fall in gross and net earnings on this account. This was because of terrorist attack in the US , which resulted in an unfavorable climate for international tourism. This trend continued in 2002-03 as well where tourist arrival in India remained subdued reflecting fears of terrorism and geo-political insecurity. However, travel and tourism industry started looking up again and in 2003-04 net receipts were considerably higher at $1435 million as compared to the deficit of $29 million in the previous year. In 2004-05, the rate of increase in travel payments (53 percent) far exceeded that of travel receipts (29 per cent), consequently, the net travel receipts in 2004-05 stood lower at 985 million as compared to those in 2003-04.

Transportation

Transportation records receipts and payments on account of the carriage of goods, persons as well as other distributive services (like port charges, bunker fuel, warehousing etc.) performed on merchandise trade. Annexure B provides with the detailed transportation account and it can be seen that on the receipts front ‘freight on exports’ is the major contributor. India has witnessed a deficit on transportation account over a long period. However, from past two years this account has turned into surplus. In fact, net receipts under transportation turned positive in 2003-04 after a prolonged gap of 20 years. However, its share in total services export has fallen over a period as can be seen from Table 2.

Insurance

Insurance receipts consist of insurance on exports, premium on life and non-life policies and reinsurance premium from foreign insurance companies. Insurance on exports has the maximum share in the total insurance receipts and is directly linked to total exports from India . After experiencing negligible foreign exchange earnings prior to 1995-96, India has been continuously experiencing a surplus on Insurance account thereafter. Though, total receipts under this account have risen considerably from $179 million in 1995-96 to $909 million in 2004-05, but its share in total services exports has fallen (Table 2) and its net earnings are also insignificant. India has witnessed a sudden jump in its insurance receipts and payments for 2004-05. This could have been because of a high growth of 26 per cent in India ’s exports. Further, with the liberalisation in this sector, the earnings of this sector are expected to increase.

Government Not Included Elsewhere

‘Government not included elsewhere’ receipts represent inward remittances towards maintenances of foreign embassies, diplomatic missions and international/regional institutions in India . On the other hand, GNIE payments record the remittances on account of maintaining Indian embassies and diplomatic missions abroad and remittances by foreign embassies on their account. The net earnings/payments of this account are negligible and so is its share in total services sector exports.

Miscellaneous

Miscellaneous services encompass communication services, financial services, software services, construction services, news agency services, royalties, copyrights and license fees, management services and others. Since 2000-01, software services are shown as a separate sub-item under miscellaneous services in the BoP and have the largest share.

During 1990s miscellaneous services at the back of a massive spurt in software service export and aided in general by the climate of progressive liberalisation emerged as the major driver behind services sector export growth and the largest contributor in the total as well as net services export (Annexure A). It has also emerged as one of the major constituent of net invisibles. However, at the same time, payments for communication services, construction services, financial services, royalties, copyrights and license fee and other services have also risen. There is a significant outflow on account of other services. During 2004-05, two-third of the total service payments by India were contributed by imports of business and professional services. They mainly included payments for construction, financial, communication and managerial services, reflecting the ongoing technological transformation of the economy and modernisation of Indian industry.

Software Exports

An important development of the 1990s was the emergence of software service sector as a dynamic area of export activity, resulting from IT revolution. Software services (with an average share of around 50 per cent in net invisible earnings for the past 4 years), have surfaced as an important source of miscellaneous earnings, contributing substantially to total services receipts with gross as well as net earnings from software exports rising steadily. Within this sector, India is making its mark in IT-enabled services (ITES) and the business process outsourcing (BPO) segment. Established software service companies have entered into the ITES-BPO segment encouraged by earning opportunities. Within the ITES, service lines, customer casre and finance have been the fastest growing segments. In terms of outsourcing of IT services, India has an edge over its competitors like China and Mexico due to its proficiency in English. In the BPO segment, India has maintained its lead as the best outsourcing destination, particularly for the US and European companies. Also, India has remained a dominant exporter of software and IT-enabled services due to low cost, high quality of product and services and adequate supply of skilled labour. India ’s software industry has progressively enhanced its market share in global IT spending from 1.5 per cent in 2000-01 to an estimated 2.2 per cent in 2004-05. Globally India ranks second only to Ireland in exports of computer and IT services.

Services Exports: A Renewed Focus

The rising importance of trade in invisibles has also been reflected in the country’s trade policy. The services sector has been identified as a thrust sector for trade policy. The Foreign Trade policy 2004-09 and the Union Budget for 2003-04 have sought to promote export of services through access to service providers to duty-free imports, advance licences, venture capital funds and by formulation of specific action plans for the services sector. The Foreign Trade Policy 2004-09 has announced the setting up of a Services Export Promotion Council to snap opportunities for services in important markets and to develop strategic market access programmes including brand building. This would be in co-ordination with sectoral players and recognised nodal bodies of the service industry. Foreign trade policy also announced ‘Served from India ‘ Scheme and the main features of the policy are given below

In addition, the government is also planning to promote the establishment of ‘Common Facility Centres’ for use by home-based service providers, particularly in areas like engineering & architectural design, multi-media operations, software developers etc. in state and district-level towns, to encourage home-based professionals into the services export arena.

In the latest Annual Supplement to Foreign Trade Policy 2004-09, released on the 7^th April 2006, a number of features have been added in the Served from India Scheme to meet the requirements of service exports. They are:

1. Service exports in Indian Rupees, which are otherwise considered as having been paid for in free foreign exchange by RBI, will now qualify for benefits under the Served from India Scheme. In addition, the foreign exchange earned through International Credit Cards and other instruments as permitted by RBI for rendering of service by the service providers shall be taken into account for the purposes of computation of entitlement under the Scheme.

2. Benefits of the Scheme earned by one service provider of a Group company can now be utilised by other service providers of the same Group Company including managed hotels. The measure aims at supporting the Group service companies not earning foreign exchange in getting access to the international quality products at competitive price and providing services of international standards. This new initiative allows transfer of both the scrip and the imported input to the Group Service Company, whereas the earlier provision allowed transfer of imported material only.

3. Stand-alone restaurants will now be eligible for benefits under Served from India Scheme at 10 per cent of FOB value of exports (instead of the earlier 20 per cent).

GATS: Strategies for India

Since 1995, international trade in services has moved into centre-stage in international trade policy negotiations with the first set of international rules for trade in service being brought into force under the General Agreement on Trade in Services (GATS) of the World Trade Organisation (WTO). Negotiations commenced on January 1, 2004 which are based on request-offer approach. India , which has been a signatory to the GATS since its inception, has made initial commitments binding it not to introduce restrictions that could adversely impact international trade in services. India has made ‘requests’ to trading partners to consider liberalisation in computer-related services, architecture services, health services, audio-visual services, tourism, maritime services and financial services. India has also received requests from about 50 countries to take commitments in a range of service sectors with regard to transparency in domestic regulations, simplification of procedures, elimination of differential treatment of foreign service suppliers and facilitation of the movement of natural persons. The GATS also covers commitments to liberalise the modes² of delivery of services – cross-border trade, consumption abroad, commercial presence and movement of natural persons.

Given India ’s strong competitive edge in IT and ITES, and competence of its professionals and its position as a dominant remittance-receiving economy, its efforts have been to get binding commitments in cross-border supply of services (Mode 1) and movement of natural persons (Mode 4). In Mode 4, India has been pushing for clear prescription of the duration of stay and removal of the ‘Economic Needs Test’ (ENT). Though the Services negotiations have been salvaged at the Hong Kong Ministerial, quick and detailed work is needed in the form of examining the detailed requests and offers and arriving at concrete proposals in each of the 12 main categories and 156 sub-categories of services.

Conclusion

The rising importance of trade in services calls for exploiting competitive advantage that India enjoys and initiate strategies to boost the sector. There are various visible and invisible barriers to services trade, like visa restrictions; economic needs test, sector specific restrictions and selective preferential market access through regional initiatives. Despite the constraints, there is scope for increasing diversification into a variety of areas such as consultancy and R&D services, healthcare, entertainment services, ship repair services, satellite mapping services, telecom, educational services, accounting services and hospitality services and also beyond the major markets of EU , US , and Japan . The policy measures announced in the Foreign Trade Policy 2004-09 to promote services exports should help along with proper synergy between economic policies and trade strategies.

End-Notes

1. The balance of payments accounting is carried under two heads, namely current account and capital account. Transactions relating to goods, services, income and current transfers constitute the current account. This current account is again classified into two broad categories: merchandise and invisibles and services form a major part of invisible transactions.

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

*         This note is prepared by Gauri A Ranade and Abhilasha Maheshwari.

Highlights of  Current Economic Scene

AGRICULTURE

The central government has indicated the plans to import additional 1.5 million tonnes of wheat. The additional imports are meant to strengthen food stocks in the severely depleted central grain pool owing to the downward revision of wheat estimates to 73.1 million tonnes and fears of damage to the crop due to unusual rise in temperatures in February following untimely rains. The fresh order would push up total wheat imports to 2.0 million tonnes. The farmers have protested this move since it has been taken at the beginning of the marketing season for wheat, which by improving supply condition, is expected to restrain the possible higher returns to the producers. Wheat procurement has begun on fresh arrival of the new crop from major wheat producing states like Punjab, Haryana, Madhya Pradesh, Uttar Pradesh and Gujarat .

After hitting Maharashtra and Gujarat, bird flu has now been detected in the Ichhapur town of Madhya Pradesh ’s Barhanpur district, bordering Jalgaon ( Maharashtra ). However, in order to revive the domestic poultry industry from the losses caused owing to bird flu outbreak, the Reserve Bank of India (RBI) has decided to grant a one-time reduction of 4 percentage points in interest payments on loans taken by poultry units. This would apply to accounts of all poultry units with commercial banks, co-operative banks and regional rural banks (RRBs). It has also decided to provide a moratorium on repayment of the principal and interest by the affected poultry farms, which would be applicable for the period of 1 year. However, the concession scheme has not been finalised till yet.

The poultry industry in Andhra Pradesh has suffered a loss of Rs 3,500 crore in 6 weeks on account of fear factor of spread of avian flu since its outbreak in the country. While the layers (eggs) segment has incurred a loss of Rs 2,000 crore, the broilers (meat) has lost the business worth Rs 1,500 crore. As per All India Broiler Farmers’ marketing Co-operative Ltd, consumption of broiler has fallen drastically from 8 crore broiler per day to about 8 lakh birds per day. The farmers have undertaken deliberate molting of one-fourth of six crore layers. There have been reports of poultry farmers in Krishna district supposedly committing suicides.

The central government has allowed the sugar mills to export sugar from marketable surplus instead of using levy quota for this purpose. The millers have to undertake sugar exports to fulfill their re-export obligation on previous year’s raw sugar import. However, the move has been taken in the wake of expected higher sugar production to 182-183 lakh tonnes for 2005-06 against 121-121 lakh tonnes in 2004-05, which would likely generate surplus over domestic consumption.

In order to control the pepper imports from Sri Lanka , the central government is likely to impose a 4 per cent countervailing duty. According to recent International pepper community report India has been the largest importer of pepper from Sri Lanka with a share of 90.4 per cent of total export in 2004 due to 100 per cent tariff concession granted under Indo-Sri Lanka Free Trade Agreement applied since March 2003.

The country is expected to export 50,000 tonne of sugar to Pakistan at $473 per tonne cost –and-freight (c&f), after exporting an equivalent quantity in March 2006. The new contract to sell another 50,000 tonnes sugar has been awarded to India Sugar Exim Corporation. Pakistan , which is importing sugar from different countries to control the spiraling prices, and also had floated the import tender in March 2006.

The Commerce Ministry is considering the proposal to set up a special purpose vehicle for market intervention in the tobacco market to address the frequent problem of price surplus. The central government and the Tobacco Board would also help the Ministry in making the switchover as smooth as possible.

INDUSTRY

Overall

The industry ministry has sought Rs 956 crore over a period of five years for implementing the national manufacturing initiative. The funds will be used for 10 areas identified as priority action areas by the National Manufacturing Competitiveness Council (NMCC), including a national programme on application of lean manufacturing, technical upgradation support to small and medium enterprises (SMEs), entrepreneurial and management support to SMEs, a national campaign for an intellectual property rights regime and promotion of information & communication technology. The Planning Commission, which has informally indicated its willingness, has been asked to allocate a portion - Rs 150 crore - of the entire amount in the ministry’s annual plan for 2006-07.

FMCG

Spurred by high rural demand and retail sales, the fast-moving consumer goods (FMCG) sector has posted 10.6 per cent growth year on year in February 2006, the highest in the past five years, according to data provided by market research agency AC Nielsen. The rise does not come on a low base since the sales growth in February 2005 had been 8.1 per cent year on year. Also, the growth has been broad-based with all the top 10 categories growing, the only exception being packaged tea.

Automobiles

The sub-committee on human resources development, constituted under the automobile mission document taskforce, has projected that employment in the auto component industry will rise 10-fold to 2.55 million by 2015. In a report submitted to the ministry of heavy industry, it has been commented that while an increase in efficiency levels and more automation has seen employment stable over the past 4-5 years, increasing incremental investment and green field projects will see demand for skilled personnel rising.

Chemicals

The department of fertilisers (DoF) has proposed a 10 per cent increase in re-assessed urea production capacity under the new pricing scheme beginning April 1, 2006. The units undertaking de-bottlenecking or revamping will, however, be allowed to retain energy efficiency gains and it will not be mopped up for a revision in the pre-set energy norms for the stage-III of the scheme. Approval will be given for the expansion projects subject to the condition that the additional production beyond the present reassessed capacity shall be eligible for subsidy by the government only in case it is required to be sold to the farmers under the extended subsidy scheme. In case the government does not require the whole or part of the additional quantity for agricultural uses, the units will be free for export or any other industrial use. The move is expected to add an additional capacity of 7 lakh tonnes of urea annually in a cost effective manner with use of natural gas or LNG. Several companies including Tata Chemicals, Indo-Gulf, Iffco and Chambal Fertilizers have submitted revamp proposals. Last year, the country has imported 9 lakh tonnes of urea.

INFRASTRUCTURE

Overall

Infrastructure growth has bounced back to 5.6 per cent in February 2006 from a meagre 0.8 per cent in the same month last year, largely on the back of a surge in power-generation and coal and cement production. The sectors that have shown a dip in growth include steel and crude oil. The other four sectors - oil refining, coal, cement and power – have registered improved production levels during the month. However, the cumulative growth during April-February 2005-06 has been 4.5 per cent as against 5.8 per cent in the corresponding period last fiscal year.

Energy

As per a report by KPMG, the potential for private sector investment in the country’s energy sector could be around $9-10 billion over the next 5-6 years. Of this, power transmission alone could attract as much as $ 4.5 billion, with energy management and investments in coal mining attracting up to $3 billion and $2 billion, respectively. The coal sector, the report says, presents an immediate opportunity for private investors as reserves in excess of 1,000 million tonnes are being allotted for captive mining. The gas sector too offers opportunities, as the demand side of auto CNG and piped gas are together expected to account for 7 per cent of the total demand in the next five years. In the power sector, there are emerging opportunities in generation as well as transmission and distribution. In the renewable energy sector, there is potential in small hydro and wind energy, where the government is targeting an additional capacity of 10,000 MW by 2012. On the hydro front, opportunities lie in the 45,000 Mw capacity addition targeted in the next 10 years.

Power

The Centre has launched massive renovation, modernisation and uprating (RM&U) of hydro power projects across the country to augment the hydro generation and improve the availability of existing projects. For the Eleventh Plan (2007-12), it has identified 59 hydro projects under RM&U with an installed capacity of 10,325.40 MW at an estimated cost of Rs 3,116.40 crore, which would accrue a benefit of 5,461.18 MW. As per reports, the cost per MW of a new hydro project works out to be around Rs 4-5 crore, whereas the cost per MW of capacity addition through uprating and life extension uprating of old hydro project works to about 20 per cent of the amount. Further, RM&U of a hydro project can be completed in one to three years depending on the scope of works as compared to a gestation period of five to six years for new hydro projects.

Coal

The government has increased coal linkages for the core sectors, namely power, steel and cement, by about 5 million tonnes (mt) for the first quarter of next fiscal year ending June 30, 2006 i.e. 91.2 million tonnes of coal at notified prices. Of the approved linkage, the power sector would be given the bulk of coal to the tune of 78.66 mt, about 3 mt more than the linkage approved for the same period of current fiscal year.

Railways

The railway ministry has finalised an investment strategy giving highest priority to route-wise works on high-density network, in view of the announcement made by railway minister that all pending project works would be completed in the next three years. A number of initiatives have been taken for generation of additional resources through specific funding for national projects, funding from defence ministry, public-private partnership and non-budgetary initiatives for ‘National Rail Vikas Yojana’ to complete these projects.

INFLATION

The annual point-to-point inflation rate based on wholesale price index (WPI) has gone down to 4.06 per cent for the week ended March 18, 2006 from 4.28 per cent during the previous week. The inflation rate was at 5.45 per cent in the corresponding week last year.

The WPI in the week under review has declined by 0.1 per cent to 197.4 from 197.5 in the previous week (Base: 1993-94=100). The index of primary articles’ group (weight 22.02 per cent) has declined considerably by 0.6 per cent to 192 from the previous week’s level of 193.1, due to a decline by 0.5 per cent and 0.9 per cent in the price index of food articles and non-food articles, respectively.  The index of ‘food articles’ has declined to 193.8 from 194.7 in the previous week, mainly due to decline in the prices of poultry chicken, tea, moong, fish-inland, fruits and vegetables, eggs and pork. Similarly, the index of non-food articles has declined to 174.6 from 176.1 in the earlier week, due to the decline in the prices of fodder, raw cotton, raw rubber, safflower and copra. The index of ‘fuel, power, light and lubricants’ group (weight 14.23 per cent) has risen considerably by 0.5 per cent to 316.3 from 314.7 in the previous week, due to the higher prices of furnace oil, bitumen and naphtha. The index of ‘manufactured products’ group constituting the maximum of 63.7 per cent of total weight, has remained unchanged at the previous week’s level of 172.8.

The latest final index of WPI for the week ended January 21, 2006 has been revised downwards; as a result both, the absolute index and the implied inflation rate stood at 196.5 and 4.24 per cent as against their provisional levels of 197 and 4.51 per cent, respectively.

The rate of inflation has generally remained contained in the range of 4 to 4.5 per cent in last couple of 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

The Reserve Bank of India (RBI) is likely to reduce the mandatory cash reserve ratio for public sector banks from the current 5 per cent to 4 per cent to ease the liquidity position. A 100 basis points cut would release Rs 20,000 crore into the system. (P.1, TFE, 28/3/2006).

The RBI has liberalised rules governing coporate guarantees and disinvestment. It has also eased the regulatory regime for overseas investment by proprietary concerns. Under the new regime, Indian corporates can offer all forms of guarantees subject to overseas investment cap of 200 per cent of networth. At present, only promoter companies are allowed to offer guarantees on behalf of their wholly-owned subsidiaries and joint ventures. All other guarantees require a prior RBI approval.

Yielding to one of the key demands of the banking community, the RBI has hiked the interest rate ceiling on FCNR(B) deposits by 25 basis points. In the April-December period, the outstanding FCNR(B) deposits stood at $11.6 billion. The move follows a meeting of senior bankers with RBI governor in which they asked for a cut in the cash reserve ratio, unwinding of market stabilization securities and deregulation of expatriate deposits to ease a liquidity squeeze in the banking system. The decision is expected to further bolster banks’ deposit mobilization programme and will impart some liquidity into the system.

Following the introduction of norms for issuance of perpetual debt instruments by RBI in January 2006, a large number of banks are increasingly tapping the hybrid capital route to raise the fresh capital. The banking industry plans to raise close to Rs 3,000 crore through issuance of perpetual debt instruments in a couple of months. Among the state-run banks, UCO Bank was the first bank to raise Rs 200 crore through hybrid upper Tier II bonds carrying a coupon of 8.75 per cent.

RBI has permitted transfer/trading in power bonds maturing on October 1, 2010 and April 1, 2011, issued by various states to central public sector undertakings in terms of Tripartie Agreement among 27 state governments, ministry of power, government of India and the RBI, under One Time Settlement Scheme for dues of State Electricity Bonds.

PUBLIC FINANCE

The revised estimate (RE) 2005-06 for net tax revenue is at Rs 2,74,139 crore which is 0.25 per cent higher than the budget estimate (BE) of Rs 2,73,466 crore. The actual net tax revenue collection during April-February 2005-06 is at Rs 2,07,847 crore which is 75.8 per cent of RE 2005-06.

The revised estimate (RE) for the total receipts is Rs 3,62,530 crore, which is 0.18 per cent lower than the budget estimate (BE) of Rs 3,63,200 crore for 2005-06. The actual total receipts received during April-February 2005-06 are at Rs 2,79,702 crore which is 77.2 per cent of RE.

The RE for total expenditure is at Rs 5,08,705 crore which is 1.09 per cent lower than the BE of Rs 5,14,344 crore for 2005-06.  The total expenditure during April-February 2005-06 is  Rs 4,11,922 crore which is 81.0 per cent of RE.

The RE  for fiscal deficit is at Rs 1,46,175 crore which is lower by 3.28 per cent as compared to BE of Rs 1,51,144 crore 2005-06. During April-February 2005-06 the actual fiscal deficit is Rs 1,32,220 crore which is 90.5 per cent of the RE.

The RE 2005-06 for revenue deficit is at Rs 91,821 crore which is lower by 3.66 per cent as compared to Rs 95,312 crore BE 2005-06. However, actual revenue deficit during April-February 2005-06 is at Rs 98,652 crore which is 107.4 per cent of RE 2005-06. The revenue deficit during April-February 2004-05 is 108.8 per cent of the RE 2004-05.

FINANCIAL  MARKET

Capital Markets

Primary Market

Sun TV will be tapping the market on April 3, 2006 with its public issue of 6,889,000 equity shares, offering a price band of Rs 730 to Rs 875 per equity share. The issue would constitute 10 per cent of the fully diluted post issue paid-up capital of the company. The issue closes on April 7,2006.

Opto Circuits (India) Limited plans to tap the market on March 31 with their public issue of 40 lakh equity shares at a price band of Rs 240 to Rs 270 per equity share, the issue would constitute 12.98 per cent of the fully diluted post issue paid up capital of the company. The issue closes on April 5,2006.

R Systems International Limited tapped the market on March 27 with its public issue of 44 lakh equity shares at a price band of Rs 210 to Rs 250 per share. The issue closes on March 31.

Secondary Market

The market retained its bullishness during the week, supported by firm global markets trends, short covering in the derivative market as well as the sustained strong FIIs inflows in the market. During the week, the sensex surged by 329.66 points to settle at 11279.96 points and S&P CNX Nifty also rose by 122.75 points to close the week at 3402.55 points. Among the sectoral indices, all the indices closed in the positive territory except BSE CD index, which registered a decline of 0.72 per cent at 3212.33 points. BSE METAL registered the highest gain of 8.39 per cent as it closed at 8869.91 points, followed by BSE FMC at 5.13 per cent at 2211.45 points.

Sebi has, on March 20, for the first time, decided to entrust the stock exchanges with the responsibility of registration of sub-broker. The regulator, however, will continue to monitor the registration process and retain the final authority of according the approval.

On March 27, the combined turnover of the BSE and NSE was pegged at Rs 17,588.89 crore, with NSE alone reporting a record turnover of Rs 11,395.99 crore in cash segment. This is for the first time in the history of NSE that the turnover has breached the Rs 11,000 crore mark. Meanwhile, the total turnover of cash and derivatives segment stood at Rs 55,264.74 crore.

The net FII investment in the equity for the month of March 2006 stood at Rs 6688.80 crore with purchases worth Rs 52941.10 crore and sales of Rs 46252.20 crore, while in the derivative market in the futures segment their net position stood at Rs 983.12 crore and in options it stood at 585.47 crore. Meanwhile, the mutual funds have also being net buyers in the month of March to the extent of Rs 2624.03 crore with purchases worth Rs 33904.16 crore and sales of Rs 31280.13 crore.

Derivatives

The total turnover of NSE’s F&O segment for the week ending March 31 stood at   Rs 191358 crore; as usual the futures continued to contribute the bulk of the trading with total turnover of Rs 174806 crore, while the options total turnover stood at Rs 16552 crore.

Government Securities Market

Primary Market

The RBI has mopped up Rs 6000.26 crore and Rs 1750 crore through 91-day treasury and 364-day treasury bills, respectively. The cut-off yield for 91-day treasury bill and 364-day treasury bill were 6.1081 per cent and 6.4232 per cent, respectively.

Meanwhile, the RBI conducted the auctions of State Development Loan (SDL), 2016 for nine states for an aggregate amount of Rs 1820.62 crore. The cut-off of SDL 2016 for Assam, Jammu and Kashmir was 7.75 per cent, for Punjab and Tamil Nadu was 7.79 per cent, for Manipur, Meghalaya, Mizoram, Nagaland and Uttaranchal were 7.74 per cent, 7.70 per cent, 7.71 per cent, 7.69 per cent and 7.72 per cent, respectively.

Secondary Market

During the week, the call rates ended firm at 6.70-6.90 per cent higher from their last week’s close of 6.50-6.70 per cent. The concern regarding interest rates and firming international crude oil prices also dampened the market sentiments. During the week, the amount placed under the repo facility of RBI has averaged to Rs 7312 crore, against Rs 4348 crore in the previous week. Meanwhile, the average daily subscriptions at the reverse repo auction rose to Rs 7435 crore from Rs 571 crore in the previous week. The RBI, in order to facilitate funds management by banks on account of the year-close on March 31 falling on a reporting Friday, conducted an additional liquidity adjustment facility.

Bond Market

The RBI is likely to revise its guidelines on hybrid instruments, with a view to enabling scheduled commercial banks to raise additional capital.

Foreign Exchange Market

In the forex market, irrespective of sustained dollar buying form public sector banks and suspected RBI intervention the rupee stood marginally firm at Rs 44.62 per dollar from Rs 44.66 per dollar in the previous week. However, arbitrage opportunities at the NDF front and the further scope of credit tightening signaled by the FOMC, which raised its interest by a quarter percentage to 4.75 per cent on March 29 saw the rupee weakening to two and a half month lows at around Rs 44.75 per dollar. However, the rally in the domestic stock market supported the rupee movement. In the forward premia segment, the premia moved in a tight range and remained volatile as it tracked the liquidity conditions in the money market.

Commodities Futures Derivatives

MCX has, on March 28, launched futures trading in Arecanut of white variety. Initially May and June contract will be offered for the trading and the contract lot size will be 1 metric tonne, the contract will expire on 15^th of every month.

The domestic bullion prices, on March 30, scaled to new records after prices in London rose to highest since January 1981. Standard gold recorded a high of Rs 8,380 per 10 grams while the corresponding figure for silver stood at Rs 16,400 per kilogram. This firmness in the gold prices was largely due to the strength in silver, which was in turn driven by the news that the US securities Exchange Commission has given partial approval to Barclays to launch a silver exchange traded fund.

MCX, on March 30, has signed a memorandum of understanding (MoU) with Bursa Malaysia Derivative Berhad for trading in crude palm oil contracts on the Malaysian Exchange. The contracts that would be traded would be rupee denominated, which would enable traders to hedge themselves against price volatility. Both the exchanges will also work jointly towards market development, risk hedging and domain knowledge.

CREDIT RATING

Crisil has assigned a ‘P1’ rating to Dorf Ketal Chemicals (I) Private Limited’s (Dorf Ketal’s) Rs 150 million commercial paper programme. The rating derives strength from Dorf Ketal’s significant domestic and global presence in its niche product segments, strong competitive position driven by research and development and customized products and services and comfortable financial risk profile.

Crisil has assigned ‘AAA’ rating to Corporation Bank’s Rs 3 billion lower tier II bonds. The agency has also reaffirmed the ‘ AAA’, ‘FAAA’ and ‘P1+’ rating assigned earlier to the bank’s Rs 2 billion lower tier II bonds, fixed deposit programme and certificates of deposits programme, respectively. The assigned rating reflects the bank’s sound capital adequacy, superior asset quality and comfortable earnings level.

Crisil has reaffirmed the ‘P1+’ rating assigned to Navneet Publication’s Rs 500 million short-term debt programmes (enhanced from Rs 300 million). The rating continues to reflect the company’s sustained comfortable financial risk profile marked by healthy cash accruals.

Crisil has reaffirmed the ‘P1+’rating assigned to Hyundai Motor India Limited’s Rs 1 billion short-term debt programmes. The reaffirmation reflects the company’s established presence in the B and C segments of the domestic passenger car industry, status as the global sourcing hub for small cars, strong financial risk profile and efficient cost structure.

Crisil has reaffirmed the ‘AAA’ and ‘P1+’ ratings assigned to GE Capital Services (I) Limited’s Rs 30 billion non-convertible debentures programme and Rs8.5 billion short-term debt programmes, respectively. The reaffirmation is primarily based on the fact that GE Capital Services India (GECSI) is owned by the General Electric group (GE) through GE Capital Corporation (GECC) and on the strategic importance of the commercial finance business for GE.

Crisil has assigned ‘AA- ‘ rating to the Balkrishna Industries’s Rs 100 million non-convertible debenture programme.  The assigned rating reflects the company’s strong financial risk profile and business growth driven by capacity expansion and high operating efficiency.

Icra has assigned ‘LAAA’ rating with stable outlook to the proposed Rs 15 billion long-term bond programme of EXIM Bank. The rating take into consideration the strategic role that EXIM plays in meeting the government’s policy objectives of promoting bilateral trade and exports of Indian products and services, besides the bank’s favourable capital adequacy and capitalisation levels, improving asset quality indicators and comfortable liquidity position also supports the rating.

Icra has assigned ‘A1+’ rating to the Rs 30 billion (enhanced from Rs 20 billion) certificate of deposit programme of State Bank of Patiala (SBP). The agency has also reaffirmed the ‘LAAA’ rating to the tier II bonds and ‘MAAA’ rating to term deposit programme of the bank. The rating reaffirmation factors in SBP’s strong franchise value in its areas of operations enabling a stable deposit base and sustained market position demonstrated in the growing credit portfolio. The rating also factors in SBP’s stable core operating profitability supported by low overhead expenses, comfortable capital adequacy, solvency and ability to maintain comfortable liquidity.

Icra has assigned a ‘ LAA’ rating to the Rs 3 billion perpetual bonds of Indian Overseas Bank (IOB). The rating assigned to the perpetual bonds reflects the specific features of these instruments wherein the debt servicing is additionally linked to meeting the regulatory norms on capitalization and reported profitability.

Icra has assigned an ‘LAA’ rating to the fresh Rs 3 billion tier II bond programme of United Bank of India (UBI). The agency has also assigned and ‘A1+’ rating to the Rs. 10 billion certificate of deposit programme of UBI.

Icra has assigned an ‘LAAA’ rating with stable outlook to the Rs. 150 billion borrowing programme for 2006-07 of Housing Development Finance Corporation Limited (HDFC). The ratings reflect HDFC’s dominant market position in the housing finance (HF) industry, competitive operating cost structure, improving profitability despite intense competition, sound asset quality, well-diversified resource base and comfortable capitalisation levels.

Fitch Ratings has assigned a National Long-term rating of ‘A ( Ind )’ to the proposed Rs 5 billion upper tier II debt programme of IndusInd Bank Limited (IBL). This is the first issuance of hybrid capital by a private bank in India following the introduction of these securities by the RBI in January 2006. At the same time, the agency has also affirmed the ‘A+(Ind)’ National rating of the existing Rs 5.575 billion subordinated debt programme of IBL, as well as the ‘F1+(Ind)’ National rating of the Rs 2.5 billion certificates of deposit programme of the bank.

Care has assigned ‘AAA’ rating to the umbrella borrowing programme for FY06 and FY07 of National Bank for Agriculture and Rural Development (NABARD) aggregating to Rs.2000 crore for maturities upto 10 years. Also, the agency has retained the ‘AAA’ rating to various debt instruments of NABARD.

CORPORATE SECTOR

Hetero Drugs, the Hyderabad based pharmaceutical company, has bought over its joint venture partners entire holding in Lyka Hetero Healthcare for an undisclosed amount. Lyka was a 51:49 joint venture between the N I Gandhi promoted Lyka Labs and Hetero Drugs.

India ’s largest BPO company Genpact has announced a 50:50 joint venture with NDTV to set up a media outsourcing unit in Gurgaon to provide video editing, digitisation and graphics to news channels around the world.

Ranbaxy Laboratories has acquired 96.7 per cent of Romania ’s largest independent generics drug company, Terapia SA, for $ 324 million. This is the company’s third overseas acquisition this month after it bought the generics business Allen SpA in Italy and the auto injector business of US based Senetek Plc.

L.N. Mittal has acquired 8.2 per cent shares in Indiabulls Credit Services, the majority owned subsidiary of IndiaBulls Financial Services, for Rs 90 crore.

Bajaj Auto has scales up its share in Mukand Limited by 2.14per cent through open market operations.

Zee Telefilms Limited, media major, has announced a restructuring of its broadcasting business to create three independent entities by hiving off its cable distribution arm, Siti Cable (the country’s biggest cable network), its news operations (six existing channels), and its DTH business- Dish TV.

Wipro Infotech has secured a Rs 360 crore information technology outsourcing contract from HDFC Bank. The contract spread over 10 years is India ’s second largest domestic IT contract after the Rs 700 crore Bharti-IBM deal last year.

Western India Shipyard has secured major contract from Adani Group compay PMC Projects ( India ) Private Limited for the construction of a multi-utility craft of the value of abut Rs 3.5 crore.

Hyderabad based Autobindo Pharma has received USFDA approval to market Zidovudine capsules, intended to use for the treatment of HIV-1 infection in the country.

Utility vehicle maker Mahindra and Mahindra is planning to set up a motorcycle assembly plant at Haridwar in Uttaranchal at an estimated investment of Rs 300-400 crore. The 30,000 unit capacity plant is expected to start marketing 100cc and 125/150cc bikes by 2008.

Low cost airlines SpiceJet has registered a 60 per cent rise in its net sales to Rs 130.7 crore in the quarter ended February 2006 over the previous quarter. The company has reported a net profit of Rs 4.3 crore in the quarter ended February 2006, as against a net loss of Rs 21.36 in the previous quarter.

Pfizer Limited has posted 84 per cent rise in the net profit for the quarter ended February 2006 to Rs 24.8 crore over the same period previous year.

EXTERNAL SECTOR

India is considering amendments to the Foreign Exchange Management Act to allow corporate entities from Bangladesh to invest in India . However, restrictions on individual investments from the country are likely to continue due to security concerns.

LABOUR

According to the Outcome Budget (2006-07) tabled in the parliament on March 21, the National Rural Employment Guarantee Scheme (NREGS) is expected to provide 100 days of guaranteed wage employment to 1.16 crore rural households, generating 116.12 crore mandays during 2006-07. While Rs 10,556 crore (91 per cent) would be made available by the centre for providing wage employment guarantee, the states would contribute the remaining Rs 1,056 crore. The Outcome Budget also mentions that the outcomes under the NREGA (An Act enabling NREGS) would be ‘the creation of durable assets and strengthening the livelihood resource base of the rural poor’. It added that this would take at least 3-4 years before this outcome could be materialised.  Even in the case of Integrated Child Development Services (ICDS), which seeks to provide an integrated package of health, nutrition and educational services to children up to six years of age, pregnant women and nursing mothers, the Outcome Budget mentions that the impact would be assessed through an independent agency at the end of 3 to 5 years. One of the quantifiable outputs under the ICDS for 2006-07 is to operationalise 5,635 projects. Similarly, the Sarva Shiksha Abhiyana (SSA) is targeted for enrollment of 100 million children in the age group of 6-14 years in 2006-07. An additional five lakh classrooms will be also created taking the total number of classrooms to 34 lakh in 2006-07. Similarly, as many as 1.5 lakh teachers would be recruited, taking the total number of teachers to 42 lakh till the end of 2006-07.

TELECOM

The department of telecom (DoT) has released new guidelines with regard to increasing the limit of spectrum for GSM and CDMA operators on the basis of their subscriber base respectively. The move comes as a major boost to the mobile industry, which is adding as many as 5 million subscribers per month. While the total spectrum was capped at 10 Mhz for GSM and 5 Mhz for CDMA players, it has now been raised to 15 Mhz for GSM and 7.5 Mhz for CDMA for 21 lakh subscribers each. According to new criteria, a GSM operator will get spectrum beyond 10 Mhz in two tranches – from 10 Mhz to 12.4 Mhz (when it crosses 10 lakh subscribers) and 12.4 Mhz to 15 Mhz (when it crosses 16 lakh subscribers). The CDMA operators will get beyond 5 Mhz to 6.25 Mhz and then to 7.25 Mhz. The new criteria comes into effect immediately. It has, however, not taken into account the demand of CDMA operators that equal spectrum be allotted to GSM and CDMA operators for the same number of subscribers. For Delhi and Mumbai, while a GSM operator could get only 10 Mhz for 10 lakh subscribers, now it can claim a total of 15 Mhz for 21 lakh subscribers. 

*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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