Five and a Half Decades of the Indian Railways: Their Glory and Tumultuous Growth*

“Railroads…. are positively the greatest blessing that the ages have brought for us. They give wings; they annihilate the toil and dust of pilgrimage; they spiritualize travel”.

Nathaniel Hawthorne

Introduction

The three basic needs of men are food, shelter and security. In quest of these needs he is always on the move from time immemorial. The invention of the wheel, which not only helped him in this quest but also ushered in the era of transport revolution. According to Marshall , the transport industries, which undertake nothing more than mere movement of persons and goods from one place to another, have constituted one of the most important activities of man in every stage of civilization. In this sense, the railways have proved to be the most essential wheel in the country’s economic progress and prosperity.

The Evolution

Diolkos, a 6-km long railway that transported boats across the Corinth isthmus in Greece in the 6^th century BC , which run on grooves in a limestone track pushed by slaves is the oldest railway. The first steam locomotive to operate on rails was built by Richard Trevithick, and first ran on February 21, 1804. The first electrified railway was operated at Coney Island from 1892. Diesel and electric trains and locomotive replaced steam in many countries after world war. Fairy Queen built in 1855, playing between New Delhi and Alwar in India , is the longest-running steam locomotive in regular service in the world . John bull, built in 1831, is currently the oldest operable steam locomotive, preserved in mostly static display at the Smithsonian Institute in Washington , DC .

Railways, being the cheapest mode of conveyance in India , played one of the most important role in the country’s macro economic growth, and socio-economic transformation over a century and more. It is the most essential wheel in the country’s economic progress. India , the vast sub-continent, is knitted together by the rail arteries that constitute the very life line of the nation and are the mainstay of the agricultural, industrial and economic development of the country. Hence the story of railways typifies the story of the nation.

Saga of Indian Railways began when the train ‘ Sahib, Sind, Sultan’ named after the three engines that hauled India’s first train, chugged out of Bori Bunder to Thane, a distance of 34 kilometers, with its 14 carriages and 400 passengers on April 16, 1853.

Indian Railways are managed by the government and is the second largest railway system in the world. IR is categorized into 16 zones according to geographical coverage for administrative convenience. IR runs on a multi-gauge system comprising Broad Gauge (BG) (1.676 meters), Meter Gauge (MG) (1.000 meter) and Narrow Gauge (NG) (0.762 meter and 0.610 meter) according to the distance between two rails in meters mentioned in brackets.

Indian Railways Assets

Capital-at-charge for the Indian Railways as set out in the accounts is the sum made available by General Revenues for investment of the railways. It excludes cost of assets created out of depreciation reserve fund, development fund, capital fund, railway safety fund and special railway safety fund or revenue. On the other hand the Block account – forming an annual appropriation account for the railways indicates the total capital assets including the value of assets financed from the above different fund. Table 1 shows capital-at-charge and total value of railway assets under broad categories from the Block account excluding only value of assets created from revenue as their replacement will be financed from current revenue. It can be seen from this that while 52 per cent of assets created from the finance from general revenue, 48 per cent of the railway assets creation finance came from other funds. More over this funds financed 55 per cent of standard engineering works and 45 per cent of rolling stocks in 2005. This share was 25 per cent and 8 per cent in 1977 which shows the reliance of railway more and more on other funds rather than general revenue.

Indian Railways Network

According to Planning Commission, transport planning frame work , policy issues and perspective April 1988 , about 85 per cent of IR network was inherited from the British. After independence the progress of expansion in railway network is niggardly. The total route length i.e. length of railway route open for traffic at the end of each year, (in calculating the length of the route, double or more lines are counted only once) has expanded from 53,596 kilometers in 1950-51 to 63,221 kilometers in 2004-05 at an compounded annual growth rate of 0.03 percent . In spite of this, there was substantial progress had been made in electrification of route. Electrified route rose from a miniscule of 388 kilometers in 1950-51 to 17495 kilometers forming about 28 per cent of total route kilometers. As of 31^st March 2005, IR had a total track length of 108805 kilometers, of which running track length ( distance of multiple tracks i.e. double, treble etc. taken as two, three or more as the case may be) is 84,260 kilometers or 77.4 per cent of total. In running track length 32686 kilometers or 38.8 per cent is electrified Table 2).

As already mentioned IR runs on a multi-gauge system. Out of these broad gauge is the most prominent accounting for about 75 per cent of the total route length. Broad Gauge, which was 25,257 kilometers in 1950-51 almost doubled by 2003-04 to reach 46,807 kilometers. All most all double /multiple track section and electrified route length lie on broad gauge. Meter and Narrow gauges are mostly single and non electrified lines. This substantial increase is mostly achieved by converting MG system to BG system rather than with the addition of new lines. Actually the progress in the creation of new lines has been abysmal. The governmental policy of uni-gauge system , which was launched in April 1992 also helped this increase in BG system.

Resource constraint and also diverting major portion of this scarce resource to doubling of lines and conversion of MG into BG lines gobbled up the major chunk of the allocation investment. Moreover IR’s dependency upon the planning commission to provide fund for the construction of new lines is meagre to railways as compared to the outlay for transport especially road transport.

As already explained above there has been significant increase in the running track length ( increase of 24,945 kilometers) rather than in route kilometers (increase of 9,869 kilometers) between 1950-51 to 2004-05. This also reflects the railway authorities emphasize on doubling the track of high density single line section than on extension of route length by constructing new lines. Carrying capacity of BG system is double that of MG. Hence in all these years authorities attention were focused on gauge conversion.

More over in India MG system single line has reached saturation point and doubling of MG is less economical. A uni-gauge system i.e. only BG system is able to overcome the difference in line gauges which leads to detention of goods and rolling stock at break of gauge points leading to bottleneck in transportation.

The traffic density increased from 4.29 mn GTKms in 1950-51 to 15.92 mn GTKms in 2003-04. This increase in average traffic density necessitated introduction of high pay-load bogie wagons and replacement of old steam locos by more powerful diesel and electric locos. As a result, tracks have become subjected to heavier axle loads and higher speeds. This increased track loading has necessitated improved uni-gauge track structure. This also necessitates replacing the traditional wooden and steel and cast iron sleepers by safe and economic concrete sleepers. Electrification is another area, where IR have accorded high priority. This is done with a view to reduce the dependency of petroleum based energy in rail transport. All the above mentioned needs forced the authorities to put construction of new lines in the back burner to some extent.

Density of route length i.e. kms/000 sq kms of area reveals there are many area which are not connected with rail arteries even in 2004-05. Table 3 depicts state-wise route length and density of route length. North Zone comprising Haryana, Himachal Pradesh , Jammu and Kashmir , Punjab, Rajasthan, Uttar Pradesh, Uttranchal, Chandigarh and Delhi , with 20210 km or 31.8 per cent in 2004 as against 18045 or 30.5 per cent in 1981-82 has got maximum length of rail line. West Zone with Gujarat, Madhya Pradesh, Jharkhand, Maharashtra, Goa was placed second with about 27 per cent of total rail length in both the years. South Zone covering Andhra Pradesh, Karnataka, Kerala, Tamil Nadu and Pondicherry comes in third with 21 per cent of total rail length in 2004-05 . There is a fall in share of East Zone encompassing Bihar , Orissa, West Bengal,Sikkim and Chattisgarh from 18 per cent in 1981-82 to 15.3 per cent in 2004-05.

IR operate from 7,133 stations as on March 2005. It has got about 1.2 lack bridges in service, of these 9.792 were classified as major bridges. Similarly, as on March 2005, there were 38,341 level crossings of which 16,549 were manned level crossings.

Rolling Stocks

Locomotives

IRs locomotives are manufactured by Chittaranjan Locomotive Works (CLW), Chittaranjan and Diesel Locomotive Works (DLW) . Bharat Heavy Electrical Ltd. Also manufactured a few electric locos. As on March 31, 2005, the total fleet on line consists of 3,068 electric loco, 4,801 diesel loco and 44 steam loco as compared to 72 electric, 17 diesel and 8,120 steam loco in 1950-51. The new units added to the stock from time to time are of improved design and better loading capacity than the older stock on line. Rate of growth of locomotive has been on the decline mainly due phasing out of steam locomotives. Steam locomotives were phased out over the years which helps in the reduction of consumption of coal. Moreover the introduction of diesel and electric traction has brought about improvement in output.

Coaching Stocks

Coaches are manufactured by IRs in their two international factories – the Integral Coaching Factory (ICH) at Perambur and the Rail Coach Factory (RCF) at Kapurthala. New coaches with better layout and more seating capacity are being manufactured. 2-tier and 3-tier AC coaches have replaced first class coaches of lower capacity. Number of passenger coaches in 1950-51 which was 13,109 with a seating capacity of 8.55 lack numbers went up to 37,119 coaches with a seating capacity of 26.51 lack numbers in 2004-05. EMU coaches rose from 460 with seating capacity of 0.88 lack numbers in 1950-51 to 5006 with a seating capacity of 9.15 lack numbers .

Wagons

There has been a deceleration in the growth of wagons. This drop in total number of wagon on line especially after 1980-81 was mainly due to accelerated pace of condemnation of over-aged wagons and at the same time not so fast accretion of new wagons. However, wagon utilization has shown steady improvement. As on March 31, 2005 IRs have 2.3 lack wagons having a capacity of 10.60 million tones. Of these, about 30 per cent were covered wagons and about 47 per cent general open wagons. IRs are gradually replacing 4 wheeled stock by bogie wagons having higher pay load and speed potential for optimum utilization of line capacity. The average wagon capacity rose from 24.3 tonnes to 47.7 tonnes in 2004-05 (Table 4).

Indian Railways: Freight Traffic

The corporate plan for the 15-year period 1985-2000 envisages a build up of the railway system to carry by 2000 :

270 to 400 billion net tonne kms of freight traffic.

310 to 330 billion passenger kms of non-suburban passenger traffic and 105 to 110 billion passenger kms of suburban passenger traffic.

In addition to this, it envisages 15 percent reduction in cost of transport in real terms.

To achieve these objectives, IRs planned to adopt following strategies.

Optimise investment and improve productivity of assets
Technology up gradation.
Bring down cost by reducing fuel consumption, material cost etc.
Adopt cost-based tariff policy
Rehabilitate and maintain assets particularly track and rolling stock.
Develop human resources.

IRs witnessed a phenomenal growth in freight traffic during the past 57 years.

Revenue earnings originating tonnage in freight traffic has gone up by 10 times i.e. from 73.2 metric tonne in 1950-51 to 726 metric tonne in 2006-07 (BE) i.e. by 891.8 per cent with an average annual growth of 15.9 per cent during the 56 years which is much more than the corporate plan estimates.. In other words today IRs carries nearly 2 million tones of freight traffic every day. However the average lead for freight traffic had gone up from 513 kms in 1950-51 to 754 km in 1980-81 , there after it dipped to 660 kms by 2000-01 and it hovered around there till now. Consequently, net tonne km i.e. transportation of one tonne goods over one kilometer , moved up by 442 billion NTK to reach 480 billion NTK in 2006-07(BE) from 38 billion NTK in 1950-51 thus registering an annual increase of 20.8 per cent . Gross freight earnings have gone up by more than 290 times from Rs. 139 crore in 1950-51 to Rs. 40,320 crore in 2006-07(BE). Average rate per tonne km which shows the impact of the increase in freight rates has been consistently going up from 3.2 paise in 1950-51 to 84.1 paise in 2006-07 at an average annual growth of 29.1 per cent during the last 56 years (Table 5).

Freight rates on IRs are tailored to the needs of the economy are basically based on the principle of gross subsidization, this made the spread of freight rates very wide. More over large number of commodities moved by IRs in unit train loads and these commodities in railways parlance known as bulk commodities and includes coal, cement, fertilizers, mineral oil etc. Railways encourage movement of unit train load commodities and hence introduced unit train load rates which are much lower than the normal wagon load rates. These bulk commodities forms about 90-95 per cent in all the last five and half decades of IRs operation. More over IRs have to fulfill their social obligation also by moving commodities like food grain, sugar, salt, sugar cane, oil seeds, bamboos, fruits and vegetables etc. The loss incurred in moving these commodities was Rs. 329 crore in 2002-03, however it is estimated to be only 55 crore in 2005-06 (Table 11).

Trend in composition of revenue-earning freight traffic indicates that coal movement still the main revenue earner for railway as it forms about 47-48 per cent of total tonnage moved by railway, this is followed by movement of metallic ore which forms about 10 per cent in 2003-04. Foodgrain movement rose from 7.8 Mn tonnes to 44.3 Mn tonnes during the last five and half decades. The movement of all these commodities are highly subsidized and hence the profits are lower or even negative However some commodities like iron and steel, mineral oil, cement and non-ferrous metals which are usually moved in net train load are high profit yielding commodities as compare to fertilizer and ores. If IRs can attract more of net train load of above profit earning commodities, it can earn more revenue. Although traffic in Mineral Oil, Cement etc. has not shown any drop during the past 56 years, in respect of many other commodities there has been a consistent drop in tonnage during this period. The shift of non-bulk profitable traffic to the road transport has been adversely affecting the finances of the railways (Table 6).

IRs have taken a number of steps to increase the net load per wagon and the net load per train which resulted in commendable performance. These efforts are visible as the average net load per unit train on IRs have been going up from year to year. Average net load per train in 2003-04 was 1,526 tonnes on BG against 489 tonnes in 1950-51.

Effective utilization of the locomotive has shown good improvement as the net tonne km per engine hour which were 3,283 km for BG in 1950-51 have rose to 16,723 km in 2003-04. More over net tonne kms per goods train hour which was 8,590 for BG in 1950-51 have gone up to 39,770 in 2006-07 i.e. by 363 percent showing an average increase of 6.5 percent per year during the last 56 years.

Wagon kms per wagon per day went up from 62.3 kms in 1950-51 to 187.3 kms in 2003-04. As a result Net tonne kilometers per tonne of wagon capacity per annum which were 11,833 kms in 1950-51 increased to 42,237 kms by 2003-04 and Net tonne kms per wagon per day recorded a compound annual growth rate of 2.5 per cent during the last 53 years (Table 7).

Track utilization is measured by density of traffic in terms of Net tonne kms per route kms in BG has been improving year to year , NTKms increased to 8.14 million in 2003-04from 1.50 million in 1950-51 i.e. by almost 6 times during the 53 year period.

A comparison of wagon utilization on IRs with the modern European railway system shows a wide margin, there by attesting the better operating efficiency in certain field of IRs operation Table 7). However, IRs have to improve much in this area to reach the efficiency of Japaneese and Chineese railway system.

In spite of massive dieselization and electrification, the improvement in average speed of goods trains is minimal i.e. from 17.4 km/hour in 1950-51 to 23.3 km/hour in 2003-04.

Wagon turn round was 11 days for BG in 1950-51 with an average lead of 513 kms has came down to 6.7 days in 2003-04 with an average lead of 684 kms. It has reported that wagon turn round would be less than 3 days in 2005-06 ,which means there is considerable scope for improvement in this area.

Passenger Traffic

Indian Railway system is one of the biggest transporters of passengers in the world. IRs, which transported 1,284 million passenger in 1950-51 , in the next 56 years i.e. in 2006-07 carried 6,400 million passengers. Passenger kilometres involved in this huge transportation activity were 682,655 million in 2006-07 which is about 18 per cent of total world railway passenger kilometres. In 1950-51 the passenger kilometres was 66,517 million. The overall passenger carried by IRs have been of the order of 398.4 per cent showing an average annual rate of increase of 7.1 per cent which in another word means IRs carries 17.5 million passengers a day (Table 8).

IRs were ranked third with 240.6 billion passenger kms next to USSR railways with 390.2 billion passenger kms and Chineese railways with 258.3 billion kms. Fourth was Japaneese national railway with 198.3 billion passenger kms. Inspite of China’s large population, the number of passengers transported by Chineese railways is lower than that of IRs because of higher lead of 70.1 kms. Even though Japaneese railways transport large number of persons because of low average lead the passenger kms involved in transportation activity on Japaneese railway is lower than in IRs. With the disintegration of USSR , and taking both number of passengers and passenger kms into consideration IRs is the largest transporters of passengers in the world at an average rate of 25 paise per kms in 2004-05. Average lead of total passenger traffic has doubled in 57 years from 51.6 kms in 1950-51 to 106.7 km in 2006-07.

Passenger earnings rose from RS. 98 crore in 1950-51 reached Rs. 16,800 crore in 2006-07, out of which lower class earnings was Rs. 13,627 crores in 2006-07 as against Rs. 85 crores in 1950-51. Though there is a substantial increase in passenger earnings the average rate at 25 paise per kms in 2004-05 is still the lowest as compared to any other mode of transport, It is on account of this low rate that the IRs is losing substantial amount. Many committees recommended increases in passenger fares seeing the ever widening gap between cost of providing service and the return from the same. But social and political compulsion kept the rate at the low end.

While the transportation effort involved in dealing with passenger traffic is substantial IRs are recovering hardly 28 per cent of their total earnings from passenger traffic . The freight traffic yields about 72 per cent of total railway earnings in 2006-07. Hence there is every reason why passenger traffic should not contribute at least one-third of total railway revenue at any given time and for each financial year to cut down passenger traffic losses.

Financial Results of Indian Railway

Under article 112 of the constitution, a statement of estimated receipts and expenditure of the Government of India has to be laid before the parliament in respect of every financial year which runs from 1^st April to 31^st March. This statement is known as Budget Statement. Railway finances in India have been separated from the General Finances of the Central Government, hence a separate Budget known as Railway Budget is presented by the Railway Minister. Financial relationship between the Central Government and the Railways is governed by the recommendations made from time to time by the Railway Convention Committee of Parliament.

Budget statement shows the total revenue receipts, revenue and works expenditure, distribution of receipts over expenditure and position of various funds which Railway keep with the Central Government viz., Depreciation Reserve Fund, Development Fund, Pension Fund, Capital Fund and Railway Safety Fund .

Revenue receipts of the railways consists of earning from passenger traffic, other coaching earnings ( which include parcel and luggage), earning from goods traffic and sundry other earnings like rent, catering receipts, interest and maintenance charges from outside bodies and other non-traditional areas such as leasing of right of way for OEC, commercial utilisation of land and air space and commercial publicity on rolling stock and station buildings. There are also other miscellaneous receipts like receipts of railway recruitment boards from sale of application forms and examination fees, etc. and Government’s share of surplus profits which includes receipts from subsidised Railway companies in which the Government has no capital interest. Subsidy from general revenues in respect of dividend relief and contribution from Central Road Fund for financing safety works is also accounted in miscellaneous receipts. Total of all these items makes up the total receipts of railways.

Gross revenue receipts of Indian Railways which was Rs. 263 crore in 1950-51 accelerated to Rs. 59,978 crore in 2006-07(BE) i.e. by an impressive 228 times during the fifty six year of its operation. This works out to be 10.2 per cent compounded annual rate of growth (Table 9).

Expenditure incurred by the railways is on revenue account and on works account. Revenue account consists of ordinary working expenses incurred by various department of railway in their day-to-day working. Other miscellaneous expenditure like expenditure on railway board, audit, surveys and appropriation to depreciation reserve fund ,pension fund and dividend pay to general revenue all included in Total expenditure.

The working expenses rose from Rs.210 crore to Rs. 50,397 crore i.e. by 241 times during the same period. Compounded annual growth rate works out to be 10.3 which means working expenses have escalated at a slightly faster rate than gross revenue receipts.

As a result, net traffic receipts (Gross revenue receipts-Working expenses) at Rs. 53 crore in 1950-51 increased at a slower rate to Rs.9,581 crore and the compounded annual growth rate works out only 9.7 per cent during this period which in other words means railways dividend to general revenue rose to 3,455 in 2006-07 from Rs. 33 crores in 1950-51 and CAGR works out 8.7 per cent only. In spite of this, during the 57 years of its operation railways have deferred its dividend payment only a few years. The dividend liability of the railways is calculated after taking into account the reduced rate of 6.5 per cent (earlier 7 % on the dividend paying capital of the railways) recommended by Railway Convention Committee and the latest estimates of capital-at-charge and include dividend payable to general revenue, grant in lieu of passenger tax, contribution to railway safety fund, appropriation to pension fund and payment to differed dividend if any (Table 10).

Operating ratio, the relation between operating expenses and gross traffic receipts, which was 79.8 per cent in 1950-51 came down to 74.7 in 1963-64, but thereafter it hovered around 90 to 93 percent till 2004-05. It came down to 84 per cent in 2005-06 partly due to increase in operating efficiency such as reducing the turnaround of wagons from 6 days to the reported less than 3 days in 2005-06 and partly due to change in account method such as excluding the lease amount from calculating the working expenses. However, it can be safely said that Indian Railways are one of the most successful railway system in the world in keeping their operating ratio around 90-92 per cent compared to other modern railway system of the world, all of which have much higher operating ratio. Still, in spite of keeping the operating ratio to comparative low figure. However, Indian Railways have faced utter failure in their attempt to increase their gross revenue to the desired level, as their hands are tied against implementing any rise in passenger fares because of socio-political compulsion and also Indian Railways transport mainly low tariff subsidised bulk commodities. Net revenue as percentage of capital-at-charge varied between 1.4 percent in 1950-51 and 9 per cent in 2003-04 and it is budgeted to be about 10 per cent in 2006-07. On the other hand working expenses cannot be brought down as major portion of the expenditure is due to employees remuneration and welfare and fuel charges. Hence serious efforts are called for by Indian Railways to increase their revenue when ever it becomes necessary. However, mere increase in tariff of 8 to 10 per cent in the next five years as recommended by Shri Rakesh Mohan Committee (IR –2001), is not sufficient, the more important objective should be to increase the productivity and efficiency of employees and also efforts should be made to reduce operating expenses. Here it is worth mentioning that the average increase in freight traffic in terms of net tonne kilometre has been 21.0 percent per year and in passenger traffic in passenger kilometres is 16.5 percent during the last 57 years. This clearly shows that with a low rate of investment in inputs, the indices of traffic output have shown a remarkably good performance.

The excess or short fall in revenue i.e. the residual after discharging the dividend liability rose from Rs.15 crore in 1950-51 to Rs.32 crore in 1960-61 , but there after due to comparatively low net revenue receipt there was short fall in revenue of Rs 21 crore and Rs. 198 crore in 1970-71 and 1980-81 respectively. However, from 1985-86 Indian Railways registered only excess in revenue in the next 21 years and in 2006-07 it is budgeted at Rs. 4,673 crores . The excess revenue is appropriated to the development fund, the safety fund and the capital fund, depending upon the actual needs. These funds are meant to finance part of plan requirements. However, appropriation to capital fund is made only after necessary appropriation to development fund and safety fund. In case there is a no excess or not enough excess to be transferred to development fund and capital fund, temporary loan is obtained from General Revenues to finance the expenditure to be met out of these funds. Development fund is used to finance expenditure on passenger and other railway users’ amenities work, staff welfare work, un-remunerative operating improvements and safety works. Safety fund is used for financing the work relating to conversion of unmanned level crossings and for construction of road over bridge (ROB),road under bridge (RUB) at busy level crossings. Capital fund is used for works chargeable to capital.

In addition to these funds, in 1999 RCC recommended setting up of another fund viz., Railway safety fund and it is in operation w.e.f 01-04-2001. The fund is financed through railway revenues, transfer of funds by the central government from the central road fund and contribution made from the railway safety works fund out of the dividend paid to the general revenue.

Works expenditure is financed from capital borrowed from the general revenues and also by internal resources viz., capital fund, depreciation reserve fund, development fund, railway safety fund and revenue in the case amenities and improving unremunerative operating improvements when the overall expenditure is below certain limits.

Deferred revenue fund is a transitory fund used in adverse circumstances when Indian Railways are not able to defray its obligation to pay dividend to general revenue for the capital asset which had been procured from the financing provided by general revenue i.e. the capital-at-charge . The outstanding in this fund is a liability to the railway and is paid back in lump sum or in instalment by railway when the circumstances become favourable to do so. The outstanding in the fund in 2001-02 at Rs. 2,823 is brought down to Rs. 664 crores in 2006-07 by railways.

Social Obligations

Dual role of a public utility and a commercial undertaking imposes on the railways the obligation to meet the transport requirements of all the sections of the community with the socio-economic objectives. Also, the Railways have to generate adequate revenues to meet the total expenses of running the enterprise and provide for the development and plough back for dividend. The Railways do not have total freedom to adjust their freight and fare corresponding to increases in the price of various inputs used by them. In view of this, the Railways sustain losses in the operation of suburban and short distance passenger services and uneconomic branch lines. Further, certain commodities, specially those which are required for consumption of the poorer sections of the society and a have a direct bearing on the cost of living of the masses, like food grains , salt for edible use, fruits and vegetables, etc. are carried at concessional rates which do not cover the cost of operation. Besides, relief supplies to flood-hit and drought-hit areas are carried free of charge. These are the social obligations i.e. social costs which railways are called upon to bear as a public utility undertaking. The financial cost of such obligations of the railway

Is estimated to be about Rs.8,545 crores in 2005-06 as against only Rs. 124 crore in 1970-71. This social cost works out to be 15.6 per cent of the gross traffic receipts or 18.7 per cent of the gross working expenses and it was 12.3 per cent and 14.6 per cent respectively in 1970-71 (Table 11).

In addition , Indian Railways have to incur another financial burden on account of Uneconomic Branch lines. Based on the recommendation of Uneconomic Branch Lines Committee, 1969, all narrow gauge lines and such lines that join the main line network at one end only are termed as branch lines. A review of such lines during 2004-05 indicated that 110 (50 BG, 39 MG and 21 NG) branch lines were uneconomical and the Railways incurred a loss about Rs. 405 crores excluding dividend, on their account. Several high-level committee have unanimously recommended that all such uneconomic branch lines, where alternative modes of transport exist or can be developed, should be closed down so as to reduce, to the extent possible, the losses which accrue to the Railways year after year. However, state governments are reluctant to do so. Hence it is suggested that if state governments do not agree to close down such lines state governments should share railway’s loss at 50:50 basis. Instructions have been issued for closure/dismantling of 21 such lines .In order to enable state governments for closure of the remaining 38 lines, the Railways are ready to offer financial assistance.

Planned Development

India has followed a philosophy of planned growth of economy and investments in different sectors from 1950-51. The period 1950 to 2005 is spanned by ten five year plans. In consonance with the country’s planned development railway also followed the same philosophy of planned development. Table 12 depicts the total plan outlay, to the transport outlay, and to railway sector. It can be seen that during the first three five year plans, the Central Government gave due recognition to the needs of the railway system, thereafter in the succeeding five year plans, in the guise of resource constraint and the scarce resource is required for other plan expenditure, the need of the railway is put in the back burner by the central government. The first two five year plans were mainly meant for rehabilitation of the railway system from the aftermath of second world war and the effects of partition of the country. Next three five year plans were used mainly for consolidate of the railway system. Some efforts were made in the sixth and seventh five year plans to bring about some semblance of growth in the railway system. However, the efforts for consolidation and growth of the railway system have to be coeval because the liquidation arrears of track renewal and replacement of rolling stock have to go side by side with acquisition of additional rolling stock including locomotives and construction of new railway lines, where ever necessary.

During the first three five plans the percentage of expenditure incurred on the transport system ranged from 11.07 per cent to 15.48 per cent of the total planned expenditure. In the next seven successive plans it was hovered around 13 to 15 per cent of the total plan outlay. But what is worse is the railways share is a measly 6 to 8 per cent of the total plan outlay and in tenth plan it is a meagre amount of Rs. 60,600 crore or only 4 per cent of the total plan outlay of Rs. 1,525,639 crore .

Table 13 depicts a disaggregated investment plan of the railway which reveals how skewed is all the planned expenditure . Total developmental expenditure increased from Rs. 252 crores to Rs. 24,840 crores in the last thirty six years at a compounded annual growth rate of 19.3 per cent. However, while CAGR is only 6.9 per cent between 1991 and 2001, it more than doubled to 19.3 per cent in the next six years. Allocation to rolling stock at Rs. 102 crores in 1970-71 formed 40.5 per cent of the total investment. However in 2006-07 budget this allocation though increased in absolute amount to Rs. 7,600 crores , its share was only 30.6 percent. The trend in share of allocation for track renewals in the last 36 years recorded a quantum jump from Rs. 26 crores in 1970-71 to Rs. 3,721 crores there by registering a CAGR of 21.0 per cent in the last 36 years. However, between 1990-91 and 2004-05, its share hovered around 15 to 23 per cent. There is a slow down in the spending of gauge conversion and line doubling , its share in total expenditure is only 6.7 per cent in 2006-07 as against 14.3 per cent in 1970-71. New lines received a step motherly treatment in all these years with an allocation per cent of a measly 5.6 per cent in 1970-71. It was around 5-6 per cent in all this years except in 2002-03 and 2003-04 in this two years it was about 10 per cent .

Railway is trying its best to negotiate an investment of Rs. 5 lakh crore for its eleventh plan outlay , a quantum leap from a modest Rs. 60,000 crore in the tenth plan. This extravagance emanated from the projection of a colossal Rs. 20,000 crore internal resource generation for 2006-07 in the budget . If achieved it will be the largest ,ever witnessed yet, either in country’s private or public sector so far. After its last year performance with a net profit of Rs. 11,280 crores and internal resource generation of Rs. 12,966 crores, this no longer appears boastful. An investment of Rs.5 lakh crore in the next 5 years is indeed necessary to build a world-class Railway system. Budgetary support of Rs. 50,000 crore is modest. Internal generation accounts for about Rs.125,000 crore, and borrowing another Rs. 125,000 crore . Hence the largest chunk of Rs. 200,000 crores is to be raised through public private partnership (PPP). This model is crucial to attract funds and necessitate a careful drafting of appropriate model compensation agreement for future projects. Of the money raised Rs. 200,000 lakh crore is for capacity building, out of which 1 lakh crore is for dedicated freight corridor. Rolling stock 1 lakh crore, asset replacement and signalling & electrification Rs.40,000 crore each and Rs. 1.2 lakh crore for miscellaneous expenses.

Passenger Fares and Freight Charge

Indian Railways, no doubt, is the cheapest mode of transport in India . It seems this is also the bane of Indian Railway. In order to keep passenger tariff low, it is greatly cross subsidised by freight tariff and within the passenger tariff ,cross subsidising lower class fares by over charging higher class travel cannot be carried beyond a point because overcharged freight migrates to road and overcharged passenger to air. To put railway fares on rational basis it is essential to establish a rail tariff regulatory authority. Approach paper to the 11^th five year plan, planning commission recommends a rationalisation between passenger and freight tariff. As early as in 1982-83 The National Transport Policy Committee and the Rail Tariff Enquiry Committee have both stressed the imperative need for rationalisation of fare structure and its alignment with cost. National Transport Policy Committee has even pointed out that while the Railway cost of carriage of short distance passengers is much higher than that of the roadways, the railway fares are far lower in comparison with the fare charged by the road transport. Hence it is considered prudent that this imbalance should be progressively corrected.

In the past, selective segments of passenger traffic were subjected to ad-hoc increases in fares. This has resulted in several distortions in the overall and relative fare structure. Fare structure was to be rationalised by smoothening the taper and establishing relativity of fares of various classes of travel. This would help in improving the revenue generation from passenger business. Ratio of passenger earning per passenger kilometre to freight earning per tonne kilometre gives an idea about the distortion in pricing. A ratio of one is widely believed as a financially desirable norm. A world bank study has compared the ratio of passenger and freight earnings per unit. In China, Austria, France and Korea, this ratio is more than one and it is around 06 to 0.8 in countries viz. Indonesia, Malaysia, Thailand, while in India this ratio was 0.5 in 1951 and has steadily came down to 0.3 in recent years, which is one of the lowest in the world. This indicates that the railways suffer from drastic distortions in pricing as reflected in the ratio of passenger earning to freight earning which is around 0.3 per cent in recent years. In this context, the Expert Group on Indian Railways, 2001 (Chairman: Rakesh Mohan) has recommended an annual adjustment of about 10 per cent increase in second class sleeper fares and 8 per cent in second class ordinary fares on a continuous basis for about five years, assuming about 6 percent inflation. Budget 2006-07 introduced a dynamic pricing policy for freight and passenger traffic. Passenger tariff was proposed to be rationalised so as to reduce the fares at the top end by 18 per cent and 10 per cent for AC-I and AC-II class. While there is no across the board increase in freight tariff, albeit some sort rationalisation by reducing the number of commodity group from 80 to 28. Freight rates of highest classification was proposed to be reduced and made less than double than that of the lowest classification over the next three years.

Human Resources Development

Railways, the largest employer in India , employs 14.2 lakh employees in 2004-05. Persons employed by railways at 0.9 lakh employees in 1950-51 rose to 16.6 lakh employees in 1990-91, however, in the next 14 years the number came down to 14.2 lakh employees.

Management personnel (groups A &B) make up 0.99 per cent of the total strength, while group c and D comprise 59.67 percent and 39.34 per cent respectively. Of the employees in group C and D, 4.62 lakhs (32.34) are workshop employees and artisans and 9.66 lakhs (67.66 per cent) form other categories including running staff. Railway Protection Force/RPSF personnel totalled 59,233 in 2003-04. However, the total wage bill per annum quadrupled from Rs. 5,166 crores to Rs. 20,029 crores in 2004-05 especially after the fifth pay commission recommendation of hike in salaries of government employees which was implemented in 1997. The ratio of staff cost on open line to ordinary working expenses works about 45 per cent in 2003-04.

Major challenges before IRs are to provide services matching with customers’ expectations and in assimilating rapid changes in technology. This can be met effectively only by an efficient, technically knowledgeable and job satisfied staff. Cost of staff was very high at a per capita wage of about Rs. 1.47 lakh per annum. Considering the cost of staff in the running of IR, a rightsizing approach has been adopted. Indian railways has reduced to about 14.5 lakh employees in a period 5 years, through normal attrition and by controlling fresh intake, without any retrenchment. It is also following benchmarking principles, which will help in adopting best practices and improving efficiency.

Human resource development strategies on Indian Railways have been reoriented towards enhancing competitiveness in the context of internal and external changes takes place. In addition to in-house training facilities, railwaymen are being provided specialised training in other institutions in India and abroad. The employees are also encouraged to improve their knowledge and skills by acquiring higher educational qualifications in the specified areas relevant to their work by grant of incentives. Manpower planning system has been redesigned to regulate manpower intake with reference to emerging business needs and financial viability of the system. In house training has been made mandatory at different stages to make it more effective for staff belonging to some of the safety categories. Indian Railways staff welfare schemes cover a wide spectrum of activities in the areas of education, Medicare, housing, sports, recreation and catering.

Safety in the Indian Railways

Indian Railway system is the largest railway network under a single management in the world. It has a route kilometrage of nearly 63,465 kms, an operating fleet of 497,831 wagons in terms of 4-wheelers, 48,263 coaching vehicles and 7,910 locomotives.

During 2004-05, an average of 16,021 trains, including 9.556 passenger carrying trains were run daily. Nearly 15 million passengers were booked daily and 626.18 million

tonnes of freight traffic was loaded during the year. With such a massive utilisation of assets, safety is paramount importance for operational efficiency. A very high priority is accorded to safety to enable Railways to achieve still greater heights of performance.

The term ‘accident’ envelopes a wide spectrum of occurrences with or without significant impact on the system. Consequential train accidents include mishaps with serious repercussions in terms of loss of human life or injury, damage to railway property or interruption to rail traffic of laid down threshold levels and values. These consequential accidents includes collisions, derailments, fire or explosion in trains, road vehicles colliding with trains at level crossings and certain specified types of miscellaneous train mishaps.

Incidence of train accidents per million train kilometres, which is the universally accepted safety index, dropped from 5.5 in 1960-81 to 0.29 in 2004-05. The reduction in number of train accidents as also the incidence of train accidents per million train kilometres is indicative of sustained improvement in safety performance.

The liability of the railway administration in the event of a consequential train accident attended with causalities has been defined in Section 124 and Section 124 A of the Railways Act, 1989.

Payment of compensation is governed by the Railway Accidents and Untoward Incidents (Compensation) Amendment Rules 1997. under this rules, the compensation payable in case of death is Rs. 4 lakhs. For injuries amount varies from Rs.32,000 to Rs. 400,000 depending on the nature of injury sustained.

Railway Safety Review Committee – 1998 set up under the chairmanship of Justice H.R. Khanna, a retired supreme court judge submitted part-1 of its report in August 1999 and Part II in February 2001. Of the total 278 recommendations , 240 have been accepted fully or partially and 38 could not be accepted due to various reasons.

One of the major recommendations, is that the central government should provide a one-time grant to the railways to wipe out arrears in renewal of over aged assets with in a fixed time frame. In order to implement this, central government has set up in 2001-02, a non-lapsable Special Railway Safety Fund of Rs. 17,000 crore to wipe out arrears in renewal of over aged assets of track, bridges, signalling gears and rolling stock, etc, with in a fixed time frame of 6 years.

A number of safety measures in the areas of track renewal, timely detection of flaws in rolling stock, locomotives and coaches, Upto to date signalling devices, and anti collision device developed by Konkan railway corporation to prevent collision at high speed , has been taken. A number of measures have taken up in setting up of an efficient disaster management system consisting of 172 mobile medical relief vans to give immediate medical relief in times of need..

Security

Maintenance of law and order and providing security to rail passengers and their belongings are the responsibility of the State governments, which they discharge through the Government Railway Police (GRP). IR bears 50 per cent of the expenditure incurred by each state on the GRP.

Railway Protection Force Act 1957 and the Railways Act 1989, the Railway were recently amended where by the Railway Protection Force (RPF) has been given the additional responsibility of providing protection against minor offences to passengers and in railway premises with a view to supplementing the efforts of the State police in controlling crime on the Railways.

On an average 1,2888 passenger train escort parties are deployed by RPF every day to instil confidence into the passengers with regard to safety and security. Special care has been taken by the Railways to provide security to women passengers by deploying special women squads like Surakshini (Western railway), Tejaswini (Central railway ) and Durgavahini ( east Central railway) to ensure trouble free travel to women passengers.

Vigilance

Vigilance oriented activities are largely concentrated in mass contact areas viz. booking, reservations, parcel/goods offices, trains, etc. Checks are conducted in areas like tenders/work contracts, purchase of materials, etc. where spending of public money is involved. Passenger reservation system and unreserved ticketing system have specially taken up for scrutiny to prevent mal practices. A special watch is also kept on recruitments and selections to encourage induction of candidates having high calibre and integrity. A special vigilance squad has also been actively conducting preventive checks in mass contact areas like reservation and booking offices, running trains etc.

The Latest Railway Budget for 2006-07

Railway Budget 2006-07 sought to improve the quality of services, reduce the unit cost and share the gains with the consumers. Technological up gradation in all areas of the Railways were accorded top priority to improve reliability of services and scale down operating and maintenance cost. Railway in order to expand the rail network proposed to encourage public and public-private partnerships. To augment revenue it is proposed to introduce a ‘Dynamic Pricing Policy’ for freight as well as passenger for peak and non-peak seasons, premium and non-premium services and for busy and non-busy routes. Investment strategy outline in the budget accorded highest priority to route-wise throughput enhancement work on high density networks. It envisaged construction of a “Dedicated Multimodal High Axle Lord Freight Corridor’ with computerised control on western and eastern routes.

Buoyed by the record output in 2005-06 it placed the gross traffic receipts at Rs.54,700 and Total Working Expenses at Rs. 45,728 crores.(RE) which was lower than the BE of Rs. 46,144 crore. Hence the operating ratio in 2005-06 (RE) improved to 83.7 per cent from the budgeted level of 90.8 per cent. This may be partly explained by the changed accounting of lease charges, where the principal portion, which was charged to working expenses were now accounted to plan expenditure.

Passenger services constitute nearly 60 per cent of the transport output, but its contribution to the revenue is only 32 per cent. Average rate per passenger kilometre increased from 22.6 paise in 2001-02 to 24.4 in 2004-05. Average rate per tonne kilometre increased from 73.8 paise in 2001-02 to 74.8 paise in 2004-05. As a result the ratio between average rate per passenger kilometre and the average rate per tonne kilometre, which indicates the difference in passenger and freight pricing, remained almost unchanged at around 0.3 per cent which indicates that passenger traffic is greatly cross subsidised by freight traffic .

Budget proposed for the first time in the railway history a dynamic pricing policy in order to face the stiff competition posed by road and cheap airlines. It also smoothen the intra-year movement of passenger and freight so as to improve capacity utilisation. Budget also sought to continue efforts to improve safety, security, quality of services and widening the railway network.

Major policy initiatives proposed in the budget is enumerated in the box below.

Proposed major technological up-gradations planned in 2006-07 include designing of new high capacity wagons; manufacture of aluminium and stainless wagons; improving payload to tare weight ratio; encouraging transfer of technology; and expanding the use of IT.

Public Partnership & Public-Private Partnership to get a major thrust.

Eligible rail projects will also be awarded through open bidding.

Permission to run private container trains to be given before March 31, 2006.

Inauguration of double stack container train in March 2006.

Development of strong wagon leasing market through suitable policy initiatives.

Reduction in unit cost of freight traffic by increasing loading capacity of wagons and some other measures.

25 tonne axle load trains to run on two routes for the first time in the Indian subcontinent as a pilot project.

Preferential Traffic Schedule modified and freight booked for distances beyond 800 kms will be given priority within the class.

Wagon manufacture to be increased by about 25 per cent.

Production of electric locomotives to be increased by 17 per cent and diesel locomotives by 5 per cent.

‘Increase volumes-reduce unit costs’ strategy adopted for the freight segment to be extended to the passenger segment.

Reduce losses in the coaching services (by about Rs.1,000 crore in 2006-07 and by 50 per cent in the next three years) by increasing the number of coaches and occupancy of trains; reducing travel time; and reducing losses in the catering and parcel segments.

All-India timetable to be re-worked de-novo, by using computerised simulation techniques.

Over 200 mail/express trains to be made superfast. Journey time of these trains likely to be reduced.

The number of coaches in about 190 popular passenger carrying trains to be increased up to 23-24 coaches enabling Railways to earn Rs. 200 crore additionally every year.

Upgradation of lower class passengers to higher class without any additional payment introduced on all Rajdhanis and mail/express trains.

Capacity utilisation of parcel business to be improved through a system of open tenders with graded reduction of reserve price wherever response is inadequate.

Leasing policy of brake and parcel vans to be liberalised.

E-ticket charges to be reduced; i-ticket and e-ticket can also be bought through Rail Travel Service Agents; 800 more UTS centres to be opened; 200 automatic ticket vending machines in Mumbai suburban area to be installed;

‘Jansadharan’ Ticket Booking Scheme’ and ‘Gramin Ticket Booking Service’ introduced for providing employment to youth.

Modern facilities such as ATM, cyber cafes, etc. to be provided at all major stations.

Overaged tracks and bridges and track circuiting work on all stations on A, B and C routes to be replaced by March 2007. Balance works under Special Railway Safety Fund to be completed by March, 2008.

Contribution to the Staff Benefit Fund for 2006-07 increased by nearly nine-fold.

Dedicated Multimodal High Axle Load Freight Corridor with computerised control on Western and Eastern routes to be constructed at an estimated cost of Rs. 22,000 crores.

Highest priority to route-wise throughput enhancement works on high-density network. All pending throughput enhancement works to be completed in the next three years.

What Ahead ?

The Indian Railway System is the second largest single owned railway system in the world . Total route length is 63,465 kilometres in 2004-05. The density of route length in many states is around 19 kilometres per acre which have to be increased by constructing new lines so that the state interiors are connected with rail arteries which will give the cheapest mode of transport to the farmers to send their produce to the market in urban areas within a state as well as outside the state. At the end of 2004-05, Indian Railways have got 7,910 locomotives and 37,119 passenger carriages with a seating capacity of 26.5 lakh persons; for freight traffic, it has 2.2 lakh goods wagons.

The Indian Railways, a lifeline of this sub-continental economy, has faced many moments of glory and tumultuous growth during the last five decades and a half. The past two years have, in particular, have brought about a metamorphic change in its image due to not only their improved financial performance but also greater dynamism brought to bear on the system of management.

The Approach Paper for the to 11^th five-year plan envisages a GDP growth rate 8 to 9 per cent. In order to achieve this the contribution of agriculture to GDP should be about 20 to 25 per cent.

But this agricultural produce should reach the market in urban areas cheaply and in time so that farmers can realise better returns for their effort. This can be achieved only by connecting the railways to the interior of the state by constructing new lines. Till now new line construction has got a step motherly treatment at the hands of authorities. Their mind set should be changed.

The Approach Paper also envisages the population will grow at 1.5 per cent per year, which would ensure that the real income of average Indian would double in ten years. Hence it is possible to adopt policies that will ensure that this growth is broad based benefiting all parts of the country, and especially the rural areas. According to the Approach Paper pace of railway modernisation needs to be vigorously accelerated during the 11^th plan. A paradigm shift in provision and delivery of rail services it called for.

In the area of freight traffic , it has been reported that in the first quarter of 2006-07, the revenue-earning freight traffic has gone up to 176 million tonne from 160 million tonne i.e. by 9.9 per cent increase or 24 per cent of the budgeted target for the year. Various schemes for increasing freight traffic such as dynamic pricing policy, non-peak incremental freight discount scheme, loyalty discount scheme etc. The wagon turn around has been brought down from 6 days to less than 3 days. Indian Railways wagon utilisation efficiency is better than that of many European railway system.

Passenger traffic in 2006-07 at 6,400 million passengers , with 6.8 lakh million passenger kilometres, is stupendous. This requires a gigantic effort on the part of the railways. However, the earning from this task at Rs. 16,800 crore is not adequate to the effort because of the policy of not increasing passenger tariff .In 2004-05 average rate per passenger kilometre is 25 paise, the cheapest in India ,perhaps even against the European railway system..

The ratio passenger earning per passenger kilometre to freight earning per tonne kilometre gives an idea about the distortion in pricing or even in a better word the extent of cross subsidisation of the passenger tariff by freight tariff. This require to be addressed urgently in order to sustain the railway system. In the context, the Expert group of Indian Railways, 2001 ( Chairman: Dr Rakesh Mohan ) recommended an annual adjustment of about 8 to 10 per cent increase in second class ordinary and sleeper classes for the next five years.

Cost of staff in the running of the Railways is on the rise, especially after the implementation of the fifth pay commission recommendations. The total wage bill for 14.4 lakh employees was Rs. 20,929 crore in 2003-04 with an average per capita wage of Rs. 1.4 lakh per annum. Another area of concern is the burgeoning pension payment which account for about 15 per cent of the gross revenue. In 2006-07 the staff strength may come down to 1.3 million, the number of pensioners would have probably crossed the figure of 1.3 million which means the non-working population will overtake the working population in the foreseeable future. Eventually, the Railways would have to finance its pension liability from their own resources. Though the staff strength is constantly coming down over the years the wage bill is on the rise , and as a percentage of the revenue it has remained more or less constant. To lessen the burden of heavy pension liability, the Railways have to seriously consider towards a contributory pension scheme.

The major challenges before the Indian Railways are in providing services matching with customers’ expectations and in assimilating rapid changes in technology. This can be met effectively through continuous updating of knowledge, skills and attitude of the railway staff. A comprehensive training is necessary for this.

To overcome all the above obstacles in their path and to achieve greater resilience to overcome these adverse circumstances, the railways have to increase their resource generation This requires massive investment. In this context the Railways, proposal for a massive investment of Rs. 5 lakh crore in the next five years is not too ambitious even though it is unheard of in the Indian Railways’ past five and a half decades’ history. Budgetary support envisaged will be a meagre Rs. 50,000 crore. Railways, after their last year’s performance are confident of raising internal resources to the tune of Rs. 1.25 lakh crore and will approach the market for another 1.25 lakh crore; the remaining largest chunk of Rs. 2 lakh crore is proposed to be raised through public-private partnerships (PPP). Of the funds so raised, Rs. 2 lakh crore is proposed for capacity building, out of which Rs.1 lakh crore is said to be for dedicated freight corridor, rolling stock Rs. 1 lakh crore,, asset replacement and signalling and electrification Rs. 40,000 crore each and the remaining Rs. 1.2 lakh crore for miscellaneous expenses.

If these resources were invested in a proper way, the Railways can build a railway of their dream which is comparable to any world class railway system which transport passengers and freight in comfort, speed, security and safety.

References

GOI (2006): Budget Documents 2006-07, Ministry of Railway, February and previous issues.
GOI (2005): Indian Railway Year Book (2005), Railway Board, Ministry of Railway and Previous issues.
Saxena, R N (1991): Four Decades of Indian Railways, January 19.
RBI (2006): Railway Budget 2006-07: Review and Assessment, Reserve Bank of India Bulletin, May and previous issues.

* This note is prepared by R.Krishnaswamy

The centre’s decision to ban export of pulses and introduce duty free import of sugar and lower duty on wheat has failed to curb the prices of these commodities; in spite of initial decline. This fall has been attributed to the dearth of imports of these commodities. While in case of wheat, imports have been infeasible on account of higher landing costs compared to domestic prices, in case of sugar, imports have been deficient due to higher international prices and for pulses, they have yet to arrive in the country.

Wheat buffer stock is expected to remain below the mandated norms till fresh procurement begins in the rabi marketing season 2007-08. The current stock of wheat in the central pool has been around 82 lakh tonne against the buffer norm of 171 lakh tonne for the period between July and September. The average monthly requirement of 13 lakh tonne of wheat under various government schemes would reduce the wheat stock in the central pool to around 4 lakh tonnes at end of December 2006. Even if the all the shipments of imported wheat were to arrive by December, the central stock pool at the end of December would be not more than 38 lakh tonne, thus rendering the wheat stocks to be below the buffer requirement of 110 lakh tonnes for the period October-December 2006.

The central government might allow resumption of sugar exports in October 2006 in the view of expected record sugar output of 22 million tonnes in the new season. The ban on suagr export had been imposed to curtail the rise in domestic sugar price and it was to continue till March 2007.

Bhopal-based High Security Animal Disease Laboratory (HSADL) of Indian Council of Agricultural Research (ICAR) has developed an indigenous vaccine against the dreaded bird flu disease under a Rs 8-crore project.

The centre has liberalised the scheme for strengthening agriculture marketing infrastructure by allowing state agencies to utilise their funds instead of relying on bank credit, as against the existing scheme, whereby the assistance has been credit-linked and subject to sanction of ‘infrastructure project’ by the specified banks based on economic viability and commercial consideration.

Foodgrains output as per the 4^th advanced estimate (AE) for 2005-06, released by Ministry of Agriculture on July 15, 2006, has recorded a marginal fall of 0.8 per cent to stand at 208.3 million tonnes from 210 million tonnes estimated earlier (III AE), though it is still higher by 5 per cent compared to previous year (2004-05) as shown in the adjacent table. Among the food crops, barring rice, production estimates (IV AE) of all other crops like wheat, coarse cereals and pulses have posted a drop against III AE. However, as compared to the output of previous year (2004-05), all the major food crops are expected to witness increase in their production except pulses, output of which is likely to be lower by 0.03 million tonnes. As for non-food crops, production estimates of oilseeds, cotton and sugarcane have been expected to post impressive growth over the last year.

The Supreme Court of the country has extended the trawling ban to August 15, 2006 in Kerala, to ensure a uniform 67 – day ban across the country. Though the ban would help in conservation of fish resources, marine industry has been apprehensive of export schedule getting upset as well as of order cancellation.

According to the estimates of Coffee Board, the coffee production for the current season to September has been projected at 2.74 lakh tonnes, 8 thousand tonnes lower than the post-monsoon estimate of 2.82 lakh tonnes. The production is lower mainly on account of a fall in arabica production by 3,000 tonnes in Karnataka to 76,300 tonnes and robusta production in Kerala by a similar margin to 55,400 tonnes. Robusta production has also been pegged lower in Karnataka by 1,000 tonnes at 1.19 lakh tonnes.

Industry

Overall

The government plans to launch a national manufacturing initiative (NMI) to propel growth in the sector by taking forward the strategy prepared by the National Manufacturing Competitiveness Council (NMCC) and focussing on the thrust sectors identified by the council. The commerce minister has also proposed to set up `Investment Regions for Manufacturing' with a view to promoting the pace of manufacturing as well as attracting greater investments including FDI. It inter alia aims to make industrial growth more labour-intensive.

A major policy-cum-incentive package aimed at accelerating the growth of manufacturing sector is on the anvil, taking inspiration from the report of the Ratan Tata-led Investment Commission which has made 115 specific recommendations to spur the growth in manufacturing. The package is likely to contain fiscal and non-fiscal measures and another round of liberalisation of FDI approval procedures. NMCC has proposed a national manufacturing competitiveness programme at a cost of Rs 956 crore to enhance the competitiveness of the sector. NMCC and Ratan Tata-led Investment Commission would coordinate their work through periodic discussions in specific sectors, like textiles and garments, food and agro processing, and power sector, sectors identified in view of their immediate potential for growth and employment.

The textile industry has asked for the technology upgradation fund scheme (TUFS) to co-terminate with the Eleventh Plan, if the on-going capital investments being made by the textile sector for modernisation were to proceed unhindered. The Southern India Mills Association (SIMA), along with its all-India apex textile body — the Confederation of Indian Textile Industry (CITI) — is currently attempting to bring out an estimation of the overall size of the allocation of TUFS that may be needed to meet the requirements. One of the reasons cited for the sudden stoppage of the processing of the TUFS loans is non-furnishing of the estimation to the finance ministry on the likely fund absorption by the textile units on modernisation projects under TUFS route. In 2005-06, the TUFS fund availment fell to Rs 363 crore against the ministry's allocation of Rs 467 crore or so but between February-July 2006, the industry's TUFS claims have shot to Rs 1,551 crore against the allocation of Rs 535 crore for the fiscal 2006-07. The SIMA chief has commented that the funds under TUFS are critical in scaling up modernisation of the textile industry to help the domestic textile industry achieve the full investment potential of Rs 1,40,000 crore by 2010 so as to lift up the country's textile production to $85 billion.

The Confederation of Indian Industry (CII), Tamil Nadu, has appealed to the state government to establish automotive industry parks on the lines of software technology parks. It has estimated that there is potential to create 25 new industry and region-specific clusters in Tamil Nadu. It has suggested that the government must launch Automotive Parks of India Scheme (APIS) on the lines of the Software Technology Park of India (STPI) scheme to give a fillip to the industry, and ensure that the South India Test Centre proposed by the central government was located in Tamil Nadu to meet the R&D, testing and homologation requirements of the state's automotive industry.

Given the strong growth impulses in the tractor industry, domestic tractor manufacturers are set to invest Rs 1,067 crore over the next few years to enhance capacity. Major expansion projects on the anvil include L&T John Deere, which is investing about Rs 360 crore, Sonalika and Escorts Ltd. According to a survey by the Confederation of Indian Industry, 2005-06 has been an encouraging year for the tractor sector; the production has increased to 2.96 lakh tractors in 2005-06 against 2.49 lakh tractors in 2004-05. Better availability of credit and focus on retail tractor financing by the banking sector has boosted the growth. The export performance has also been encouraging; the country has exported 28,118 tractors in 2005-06, a growth of 41 per cent over the previous year.

With the monsoon on track and increased flow of farm credits, major tractor companies in north India, primarily, Punjab, Haryana and Uttar Pradesh that contribute about 29 per cent to domestic sales, are vying to capture a larger part of this industry as well as planning to launch new products and promotional schemes. The industry had resurfaced from a de-growth phase that lasted from 1999-2003 and demand for new tractors has been mounting since then. The industry has grown by 18 per cent in 2005-06 at 2.93 lakh units, from about 2.48 lakh units in the previous year.

The first research and development, testing and validation centre dedicated to the forging industry in the country is being set up in Pune. The Rs 22-crore project, coming up at MIDC's Chakan industrial estate, is a joint initiative of the Ministry of Heavy Industries and Public Enterprises, the Association of Indian Forging Industries and the Automotive Research Association of India (ARAI), Forging Industry Division, and is expected to be operational by October 2007. The centre is to have facilities such as a research and development laboratory, product testing, validation and certification centre and consultancy in addition to a management and technical skill upgradation facility. The centre is likely to benefit the forging industry in industrial research and development work, transferring newer technologies to industry, strengthening documentation and information retrieval services and disseminating relevant information and knowledge. With Pune being one of the major automotive manufacturing clusters in the country, such a centre is expected to bring in benefits to the domestic forging industry's quest to go global.

The government has announced a reduction in central excise duty on specified textile intermediates. Subsequently, the rates on paraxylene, dimethyl terephthalate, pure terephthalic acid, polyester chips, mono ethylene glycol and acrylonitrile have been revised from 16 per cent at present to 8 per cent. The duty rate on mono ethylene glycol has come down from 16 per cent to 12 per cent.

In a move likely to bring about quality control in the tyre industry, apart from proving beneficial for consumers as well road operators, the government is likely to soon make it mandatory for tyre manufacturers to adhere to certain standards. It also plans to make it compulsory for companies to provide information such as maximum retail price, and month and year of manufacture by embossing them on the sidewall of tyres, as per policies under Motor Vehicles Act and Bureau of Indian Standards (BIS). While standards did exist for tyres earlier they have till now been voluntary in nature. The All-India Tyre Dealers Federation, while welcoming the move, has raised certain queries with the BIS like whether the rubber flaps, used along with tyre and tube for commercial vehicles, are part of BIS mandatory standard implementation, the product liability of producers and importers, etc.

The market size for flat panel TVs (LCD and plasma) in 2005-06 stood at 30 thousand units, which is expected to grow to 2 lakh units in 2006-07 – 1.5 lakh for LCDs and the rest for plasma. Further, the first four months of 2006-07 have already seen the sale of about 30 thousand LCD TVs and 10 thousand PDPs (plasma display panel). A host of domestic as well as international brands, like Samsung India and LG Electronics India (Korean), Hitachi (Japanese), Panasonic India (Japanese), Panasonic India , Sharp India (Japanese), Haier, are drawing up aggressive strategies to make a mark in this fast-growing segment. Globally, prices of PDPs came down by about 20 per cent last year and a further depreciation of 15 per cent is expected this year as volumes grow. According to market analysts, a positive trend in the plasma and LCD TVs segment has been that sales are no longer just restricted to just the institutional segment, though this segment still accounts for a chunk of total sales. As a result of the price erosion and increasing awareness, high-end televisions are making rapid inroads into Indian households.

Infrastructure

Sluggish coal production and a slowdown in the power, cement and steel sectors has pulled down year-on-year infrastructure growth to 5.1 per cent in May 2006 as compared to 8.1 per cent in the same month of the last fiscal year. During the April-May period of 2006, the core sectors have logged a growth rate of 5.9 per cent, lower than the 7.1 per cent recorded during the corresponding period of 2005-06. The overall growth registered by the six core sectors during May 2006 would have been even lower but for a rebound in crude oil production and petroleum refining sectors.

The Central Electricity Regulatory Commission (CERC) has released a consultation paper to develop a power exchange for electricity trading in the country. The exchange, a common platform for power trading, would help to streamline power trading, standardise electricity as a tradable product, provide a payment security mechanism to buyers as well as sellers and increase business confidence in the power sector. The Staff Paper on Power Exchange addresses a wide range of issues related to development of an electricity market in India . The CERC has proposed that such an exchange could be run by an independent board with five directors including a chairperson, under regulatory oversight and participation in the exchange may be voluntary for the present. The regulator has suggested that the exchange should be designed for dispensing short-term power available for trading through competitive bidding by inviting simultaneous anonymous bids from buyers as well as sellers on day-ahead hourly basis and since the amount of tradable power is low at present, a power exchange on regional basis may not be viable and only one exchange could be conceived at the national level.

Wiser from the Dabhol experience, banks and financial institutions have decided to organise the entire lending in rupees instead of foreign currencies for the ambitious Rs 96,000-crore plan to set up seven ultra mega-power projects being planned in Madhya Pradesh, Gujarat, Maharashtra, Karnataka, Andhra Pradesh and Orissa of which so far, 13 developers have qualified for bidding for the Sasan (Madhya Pradesh) and Mundra (Gujarat) projects. The Indian lenders — SBI, ICICI Bank, LIC, IDBI, IDFC and Power Finance Corporation — have proposed to raise funds from the market for financing the debt component of these projects. The lenders have indicated that all possible sources — bond markets, insurance, provident and pension funds — would be tapped within the RBI limits on individual exposure of a financial institution.

Crude oil production in the country has increased by 1.2 per cent and that of natural gas by 1 per cent in June 2006. Crude oil output rose to 2.825 million tonnes from 2.792 million tonnes last year as production from Mumbai High offshore fields, which suffered an accident in July 2005, has been restored. In the same month, refinery production (both public and private included) has seen an increase of 10.4 per cent due to a rise in domestic fuel demand. For the quarter April-June, crude production has improved marginally by 8.434 million tonnes (8.416 million tonnes a year ago). The public and private sector refineries have produced 11.75 million tonnes of petroleum products in June against 10.641 million tonnes in the same period in the previous year. Also, India has produced 2.68 billion cubic metres of natural gas in June 2006, marginally up from the 2.66 billion cubic metres produced during the same month in 2005.

The government has warned private steel producers to check prices or be prepared for an intervention, a move that may lead to controlling of prices, which were deregulated almost a decade ago, indirectly. The private players control about two-thirds of the market and hence it would not affect the overall market prices unless the private players lower their prices. Often the middlemen make profit from the price differentials between the PSUs and private players. In the last meeting with the steel ministry the private players had agreed to cut steel prices by Rs 2,000 per tonne.

The railways minister will flag off the first private container train on August 15, 2006, symbolically signalling the opening up of the container freight business to the private sector that at present is exclusive to Container Corporation (Concor), a subsidiary of Indian Railways. As per sources, the first model concession agreement (MCA) would be signed by end of July 2006. In allowing private operators, the strategy is to increase volumes by reducing charges. A new policy specifies a higher charge if a container carries more than 20 tonnes; Rs 12,000 for freight weighing up to 20 tonne and Rs 15,700 for freight over 20 tonnes. The MCA, which is being finalised, proposes a 50 per cent discount to private players using double-decker container trains on the second container; the first container would cost Rs 13,000 while the second could be rented at Rs 7,500 only. Another new measure introduced is the levelling of rates for both the domestic and export-import freight instead of charging more for exim freight as was done earlier.

Inflation

The annual point-to-point inflation rate based on wholesale price index (WPI) has gone down to 4.68 per cent for the week ended July 8, 2006 from 4.96 per cent during the previous week. The inflation rate was lower at 4.46 per cent in the corresponding week last year.

The WPI in the week under review has risen a tad by 0.1 per cent to 203.6 from 203.3 in the previous week (Base: 1993-94=100). The index of ‘primary articles’ group (weight 22.02 per cent) has declined by 0.5 per cent to 202.0 from its previous week’s level of 203, mainly due to a considerable decline of 0.8 per cent in the price index of ‘food articles’ as compared to the previous week. The index of ‘food articles’ has gone down to 203.2 from 204.9 in the previous week, mainly due to the lower prices of milk, fruits and vegetables, masur, moong and jowar. The index of ‘fuel, power, light and lubricants’ group (weight 14.23 per cent) has remained unchanged at its previous weeks’ level of 326.3. The index of ‘manufactured products’ group constituting the maximum of 63.7 per cent of total weight, has risen by 0.5 to 176.8 from the previous weeks’ level of 176, mainly due to higher prices of food products, base metals, textiles, ‘chemical and chemical products’ and ‘machinery and machine tools’.

The latest final index of WPI for the week ended May 13, 2006 has been revised upwards; as a result both, the absolute index and the implied inflation rate stood at 201.1 and 4.63 per cent as against their provisional levels of 200.5 and 4.32 per cent, respectively.

The Union Cabinet has approved setting up of the Sixth Pay Commission on July 20, 2006, to determine the wages for nearly 3.3 million central government employees for the next 10 years. The Commission will comprise one Chairman in the rank of a Minister of State, one part-time member and one member-secretary in the rank of Secretary and Additional Secretary, respectively. The commission has to submit its recommendations within the time frame of 18 months.

The Planning Commission, in preparation for the Eleventh Five Year Plan (2007-12) has decided to constitute a 29-member working group on the outreach of institutional finance and cooperative reforms to examine ways in which credit flow to relatively neglected sectors such as agriculture can be enhanced. This group will be headed by YC Nanda, member, National Commission on Farmers. The working group has representatives from banks, the bureaucracy and cooperative societies. The working group has been asked to submit an interim report by the end of the month and a final report by the end of October 2006 to the Planning Commission.

The tax collections under value added tax (VAT) regime have seen a healthy growth during the first quarter of the fiscal year 2006-07. Gross tax collection during April-June 2006-07 has increased by 26.5 per cent to Rs 26,641 crore, compared with Rs 21,060 crore during April-June 2005-06. The states like Gujarat, Rajasthan, Madhya Pradesh, Jharkhand, Uttaranchal and Chhattisgarh, which joined the VAT regime on April 1 2006, have registered a growth of over 20 per cent in their tax collections in the first quarter, according to the latest data of the empowered committee of state finance ministers on VAT. States like Bihar, Karnataka, Maharashtra and West Bengal , which in the last fiscal had sought cash compensation for revenue losses under VAT, also posted a healthy growth in the first quarter. The highest growth in collections has been visible in Union Territories . (The table 1 shows VAT collections in some major states).

Central Board of Direct Taxes has set a target of Rs 69,548 crore for direct tax collection from the Mumbai zone for the financial year 2006-07. This has been higher by 20.5 per cent than last year’s target of Rs 57,700 crore, of which the department could only collect Rs 53,000 crore.

Banking

The RBI has directed a leading internet-based financial services provider to stop operating “electronic purse schemes”. An electronic purse scheme asks individuals to open accounts and fund them by transferring money from their banks or credit card accounts. In a notification, RBI has also asked banks to dissociate themselves from electronic purse schemes. According to sources, the firm under the RBI scanner is a financial services portal which asks its user to open accounts for shopping online, sending money to relatives and friends, paying utility bills online and much more. RBI said electronic purse activities were in the nature of acceptance of deposits, which could be withdrawn on demand. The act of accepting deposits repayable on demand violates the provisions of the Reserve Bank of India Act, 1934, governing registration of NBFCs and acceptance of deposits. While the virtual accounts of such individuals are credited, the actual money is credited into the current account of the service provider with a clearing and settlement bank.

Housing Development Finance Corporation (HDFC), the lead mortgage lender, has reported a 20 per cent rise in net profit to Rs 297 crore in the first quarter of 2006-07 against Rs 247 crore in the corresponding quarter a year earlier and also managed to maintain its interest spread at 2.1 per cent amid rising costs of funds.

A number of small and medium enterprises (SMEs) are making advance payments of their overseas borrowings due to a sharp rise in interest rates in the international money market. The cost of funds raised overseas has shot up to over 10 per cent from 6-7 per cent about one-and-a-half years ago. Bankers said the SMEs that borrowed overseas almost a couple of years ago have been badly hit by the rising Libor ( London inter-bank offered rate), and the depreciating rupee has exposed them to more shocks. The interest rates on loans raised overseas are directly related to Libor, which has increased from 1.5 – 2 per cent nearly two years ago to around 5.5 per cent now. The depreciating rupee has led to the foreign loans becoming expensive as every rise in the dollar means the borrowers have to pay more in rupee terms. Most of these SMEs, unlike large corporates, have not hedged their foreign currency or interest rate risks. Hedging would have helped them avoid risks emanating from rising interest rates or the adverse exchange rate movement. Libor has firmed up with the successive hikes in the benchmark US Federal Reserve rate since 2004. The Fed raised its key rate for the seventeenth time, in June, to 5.25 per cent. The total interest cost on foreign funds raised by SMEs is now more than the cost of short-term rupee loans. SMEs can raise short-term loans at 7-9 per cent, depending on the instrument they prefer. Bankers said these companies prefer to pay off their foreign currency loans even if they have to pay a penalty because of paying early.

The RBI has allowed commercial banks to raise capital funds through issue of foreign currency debt instruments. The State Bank of India, Bank of India, and UTI Bank have lined up plans to soon tap the overseas market with upper Tier-II bonds and innovative perpetual debt instruments (IPDIs). Following the RBI nod, banks will be able to raise about $9 billion of capital through issue of IPDIs and debt capital instruments overseas. The IPDIs will be eligible for inclusion as Tier-I capital, while the debt instruments will qualify as upper Tier-II capital. Tier-I capital consists of equity and unimpaired reserves, while long-term subordinated debt and certain reserves constitute Tier-II capital, which can equal the size of Tier-I capital. Banks can raise debt capital through issue of IPDIs up to 15 per cent of Tier-1 capital as on March 31 of the previous year, and only 49 per cent of this can be raised in overseas markets. Debt capital can be raised through issue of upper Tier-II debt instruments up to 25 per cent of Tier-I capital. These borrowings will be over and above the foreign currency-borrowing limit of 25 per cent of Tier-1 capital set for banks by the RBI. Foreign institutional investors (FIIs) can invest in these instruments. FIIs’ investment in upper Tier-II instruments will be subjected to an overall ceiling of $500 million. However, there will be no cap on investments by FIIs in IPDIs and upper Tier-II instruments raised in Indian rupees. At present, FII investments in corporate debt instruments are capped at $1.5 billion. The RBI, in January 2006, had allowed banks to augment their capital funds through issue of IPDIs and Tier-II debt instruments, to meet capital requirements arising from the proposed implementation of Basel-II capital adequacy norms from March 31, 2007. The capital raised through these instruments will not be treated as a liability for calculation of net demand and time liabilities, and will not attract SLR and CRR, which are reserve requirements specified by the RBI.

Financial Markets

The market participants have continued to refrain themselves from the primary market, due to recent relaxations of ADRs and GDRs norms by the government as well as prohibition imposed on banks to swap their innovative tier I and tier II, which has resulted into market participant preferring overseas market to mobilise their required funds.

The escalating tension in the Middle East, which resulted into a rise in the international crude oil prices to a record high of $ 78 a barrel, weak trend in the global markets as well as the growing concerns that the RBI may increase interest rates in its impending credit policy review due next week have led to a sharp fall on the bourses during the week under review. The sensex has fallen by 592.31 points or 5.55 per cent to settle at 10085.95 points on July 21, 2006 as compared to 10678.22 points on July 14, 2006. Likewise, the S & P CNX Nifty has also fallen by 178.35 points or 5.71 per cent over its previous week’s closing value to settle at 3123.35 points. The sensex lost 670.88 points in the first three days of the week on account of high crude oil prices as well as huge FIIs outflows of Rs 1218.2 crore during the same period. But, on July 20, the US Fed Chief’s comments signaling an end to its two-year monetary tightening policy boosted the market sentiments as well as the short covering in the derivative markets led to an impressive gains by the sensex as it rose by 345.60 points to close at 10352.94 points. However, on the very next day, the sensex lost 267.03 points to close the week at 10085.91 points due to weak Asian markets and on concerns that the RBI may raise the interest rates next week; even a lower inflation rate of 4.68 per cent failed to boost market sentiments. During the week, the BSE Mid-Cap and BSE Small-Cap indices have fallen by 7.42 per cent and 9 per cent over its previous week’s closing value. Among the sectoral indices, the metal index has registered the highest fall of 8.62 per cent closing the week at 7592.79 points, followed by a 8.26 per cent and 8.01 per cent fall in capital goods index and consumer durables index, respectively, which closed at week at 6370.08 points and 2534.37 points.

During the week, the FIIs have remained net sellers in the equity market to the extent of Rs 807 crore with purchases of Rs 5351.8 crore and sales of Rs 6158.9 crore. FIIs sold around Rs 1218.2 crore during the first three days of the week under review. Meanwhile, as against the previous week, the mutual funds have turned net sellers in the equity market to the extent of Rs 98 crore with purchases worth Rs 1600.74 crore and sales of Rs 169874 crore.

Derivatives

During the week, the total turnover at the NSE’s futures and options segment has risen marginally to Rs 112759 crore as compared to Rs 110430 crore in the previous week, correspondingly the average daily turnover has also risen to Rs 22551.8 crore from Rs 22086 crore. The stock futures continued to contribute the bulk of trading with the weekly turnover of Rs 48797 crore and index futures weekly turnover stood at Rs 44745 crore.

Primary Market

The RBI has in its weekly treasury bills auctions mopped up Rs 2,750 crore and Rs 2,282.50 crore through 91-day treasury bills and 364-day treasury bills, respectively. Out of this, the RBI has raised Rs 1500 crore and Rs 1000 crore under the MSS through 91-day and 364-day treasury bills, respectively. The cut-off yields for the 91-day and 364-day treasury bills were 6.4391 per cent and 7.0169 per cent, respectively.

Meanwhile, the RBI has also announced the sale (re-issue) of 7.55 per cent 2010 dated government security for a notified amount of Rs 4,000 crore through price based auction using multiple price auction method on July 27, 2006.

The secondary market for gilt-edged securities has showed a mixed trend during the week, with the yields rising in the initial part of week on account of the nervousness in the market that the RBI may increase the interest rates in its credit policy review, concern regarding the upcoming auction of dates securities worth Rs 5,000 crore scheduled between July 17 and 25 and the spiraling international crude oil prices the yield on the benchmark 10-year paper rose to 8.36 per cent. However, in the latter part of the week, the easing of global crude oil prices to $ 73 a barrel, the US Fed Chief’s comments signaling an end to its two-year monetary tightening policy, a lower domestic inflation rate of 4.68 per cent coupled with the finance minister’s comments that interest rates could remain moderate if inflation rate expectations are dampened, spurted the gilts prices. Moreover, the decision of the government to reduce the size of the scheduled auction of dated securities to Rs 4,000 crore and also reduce the maturity period further boosted the market sentiments. The weighted average YTM of 7.59 per cent 2016 paper eased to 8.30 per cent on July 21 as compared to 8.3471 per cent in the previous week. In the call money market, the call rates remained unchanged from their previous weekly close of 5.75-5.85 per cent amidst sufficient liquidity. The daily average outstanding amounts in LAF reverse repo operations conducted during the week were Rs 77,792 crore as compared to Rs 47,079 crore.

Bond Market

The Bank of Maharashtra plans to come out with a fresh unsecured, non-convertible, redeemable subordinated tier II bonds of Rs 225 crore and upper tier II capital bonds up to Rs 650 crore during the financial year 2006-07. Meanwhile, the Syndicate Banks has mobilised Rs 620 crore through unsecured subordinate upper tier Ii bonds issue.

During the week, the escalating Middle East tensions which resulted into a spiraling the international crude oil prices and a rallying dollar in the overseas market pushed the rupee below the Rs 47 mark against dollar as it touched Rs 47.04 per dollar on July 19 on account of a fall in the domestic stock market as well as presence of arbitrage opportunity in the NDF market; however it recovered to close at Rs 46.995 per dollar. However, rally in the domestic stock market, a weak dollar in the oversea market on account of rumours that China could announce steps to make it currency more flexible and as also the US Fed Chief’s comments signaling a pause in its monetary tightening policy resulted in the rupee firming up against the dollar and it closed the week at Rs 46.77/78. Meanwhile, in the forward premia market the premia eased with the six-month annualised forward premia closing at 0.87 per cent on July 21 as compared to 0.97 per cent on July 14,2006.

Commodities Futures Derivatives

MCX and the University of Petroleum and Energy Studies (UPES) has entered into a mutually co-operative agreement to provide professional training resources in the field of energy trading in commodity markets.

On July 21, Rajkot Seeds, Oil and Bullion Merchants Association (RSOBMA) has joined hands with MCX, with a view to extend the benefit of interaction with the other centers of the country to its member traders. As per the tie-up, RSOBMA has created its subsidiary company called Rajkot Board of Trade (RBT) through which all the transactions would be carried out on MCX.

Rating Actions

ICRA has assigned a rating of ‘LAA (SO)’ to Rs. 1.75 billion Bond Programme of Noida Toll Bridge Company Limited (NTBCL). The assigned rating takes into account NTBCL’s improving cash flow from operations, change in its financial risk profile post GDR issue, and a credit enhancement structure.

ICRA has assigned an ‘LAA’ rating with a positive outlook to the Rs. 3500 million non convertible debenture programme of Cholamandalam DBS Finance Ltd. (CDFL). The agency has also assigned an ‘A1+’ rating to the Rs 2,000 million short-term debt (enhanced from Rs 1250 million) programme of CDFL. Both the assigned ratings factor in CDFL’s good asset quality, moderate leverage, and capitalisation on account of recent equity infusions, its financial flexibility on account of a diversified funding and its experienced and competent management.

ICRA has assigned a ‘LAA+’ rating to the to the Rs. 5 billion long-term upper tier II bonds of Oriental Bank of Commerce (OBC). The agency has also rated the bank’s conventional subordinated bonds at ‘LAAA’. The one notch lower rating assigned to the upper tier II bonds reflect the specific features of these instruments wherein the debt servicing is additionally linked to meeting the regulatory norms on capitalisation and reported profitability.

ICRA has assigned ‘A1+’ rating to the enhanced commercial paper programme/ short-term debt of National Housing Bank (NHB) enhanced from (from Rs. 10 billion to Rs. 20 billion). The assigned rating takes into account the bank’s 100 per cent ownership by RBI, its pivotal role in housing finance industry and its comfortable liquidity position.

CRISIL has assigned an ‘AA/Stable’ rating to UCO Bank’s lower tier II bond issue aggregating to Rs 3 billion. The assigned rating takes into account the benefits enjoyed by bank due to 100 per cent ownership by the government of India, bank’s comfortable liquidity position, and resource profile.

CRISIL has assigned ‘AA +’ rating to the Bank of India’s upper and lower tier II bonds issue. The assigned rating takes into account the bank’s sound market position, comfortable resource profile, and also majority ownership by the government of India .

CRISIL has reaffirmed the outstanding rating of ‘ AA/Sable’ assigned to the Rs 1663.3 million non-convertible debenture programme of Ashok following the company's announcement that it has signed a framework agreement to acquire the truck business unit of AVIA in Prague. The acquisition covers Avia's truck manufacturing facility, with an annual production capacity of 20,000 vehicles, a paint shop, and R&D facilities. The sale is subject to the completion of certain conditions as well as corporate and statutory approvals by both Ashok Leyland and Avia. Ashok Leyland expects the acquisition to be completed by the end of August 2006.

Corporate Sector

In the first half of calendar year 2006, engineering, construction, capital goods and electrical equipment manufacturers have received orders worth Rs 38,531 crore, which is 140 per cent higher than the Rs 16,090 crore of orders received in the same period previous year. Orders have been pouring in from Indian and foreign companies, central and state governments and local bodies for construction of roads, power plants, refineries, turnkey projects, electronic goods and water and irrigation works. Engineering and constructions firms have secured 76.5 per cent of the total orders; 28 firms received orders worth Rs 29,491 crore. Larsen & Toubro, Hindustan Construction, IVRCL Infrastructures, Punj Lloyd, Nagarjuna Constructions, Simplex Infrastructures and Gammon India together received orders worth Rs 1,000 crore during January-June 2006. Central and state governments have awarded the bulk of the orders, worth Rs 18,709 crore to build national highways, power, water and irrigation projects. Indian companies placed orders worth Rs 6,318 crore while for foreign companies the figure stood at Rs 6,405 crore.

Riding the outsourcing boom, Wipro’s income from operation has risen by 39 per cent to Rs 3,143 crore in April-June 2006 and its net profit has reported a 45 per cent jump in to Rs 620 crore.

Global consulting and IT services major, Satyam Computer Services, has posted a 74.8 per cent increase in net profit for the quarter ended June 2006 at Rs 360.1 crore compared with Rs 206.1 crore in the corresponding quarter previous year. Its total services income increased by 34.07 per cent to Rs 1,386.86 crore as against Rs 1,034.44 crore.

India Cements has posted a 27 per cent increase in net sales to Rs 485 crore during April-June 2006 and net profit jumped to Rs 112.59 crore from Rs 5.21 crore for the same period a year ago on the back of increased consumption in southern states. With several government projects being undertaken by Andhra Pradesh the demand from the state has doubled to 12 lakh tonne, also Karnataka's consumption doubled to 10 lakh tonne of cement during the quarter under review.

Associated Cement Companies (ACC) have announced a 21.5 per cent increase in net sales to Rs 1477 crore during April-June 2006 and net profit increased by 176 per cent at Rs 411 crore in the corresponding period previous year. ACC has planned an investment of Rs 537 crore for expanding the capacity of Bargarh cement works from 0.96 MTPA to 2.14 MTPA and setting up a 30 MW captive power plant.

Riding on the construction boom, Gujarat Ambuja’s net sales have augmented by 57 per cent to Rs 1134 corre during its fourth quarter of the current financial year. The company has posted a 109 per cent increase in net profit at Rs 303.9 crore over the same period previous year. The company’s net sales for the year ended June 2006 has stood at Rs 3,478.9 crore, a rise of 34 per cent and net profit increased by 63.5 per cent at Rs 765.7 crore.

Reliance Industries, India’s largest private sector oil and petrochemical company, has posted a 32 per cent rise in sales turnover at Rs 26,166 crore for the quarter ended June, 2006 from Rs 19,884 crore and net profit has risen by 10.3 per cent at Rs 2,547 crore against Rs 2,310 crore in the corresponding period previous year. A slightly slow growth in net profit has been mainly because of a decline in retail fuel sales, and the partial shutdown of its Jamnagar refinery for two weeks in May 2006 for maintenance purpose. The company’s production of oil, gas and petrochemicals has risen by 7 per cent to 3.52 million tonnes. The company’s other income has decreased to Rs 44 crore from Rs 194 crore as surplus funds were utilised for investment in Reliance Petroleum Limited.

GAIL India has registered a 24 per cent increase in sales turnover at Rs 4,078 crore in the first quarter of 2006-07 and net profit jumped by 22.5 per cent Rs 592 crore. The company's outlay towards subsidy sharing on LPG and kerosene April-June 2006 has been Rs 250 crore, a 63.4 per cent increase compared with Rs 153 crore that it had shared in the corresponding quarter a year ago.

Engineering and construction company Larsen & Toubro (L&T) has reported a net profit of Rs 157 crore for the quarter ended June 2006, a growth of 10 per cent compared with Rs 143 crore over the same period a year ago. Its net sales improved by 12.5 per cent to Rs 3,524 crore from Rs 3,132 crore. The engineering and construction segment recorded an impressive 121 per cent growth in order booking at Rs 6,324 crore during the quarter under review. International orders constituted 16 per cent of the total value of orders booked during the current quarter. The order backlog at the end of June 2006 was healthy at Rs 27,453 crore.

Thermax has reported a growth of 42.43 per cent in net sales at Rs 322.6 crore for the quarter ended June 2006 and its net profit registered a substantial growth of 107 per cent at Rs 27.5 crore over the corresponding quarter previous year. Thermax has recently received three orders worth Rs 345 crore to set up three power plants with total capacity of 180 MW for clients in Tamil Nadu, Kolkata and Andhra Pradesh.

Consumer goods major Dabur India ’s sales turnover increased by 12.2 per cent to Rs 335.8 crore during April-June 2006. The company has recorded a net profit growth of 37.5 per cent at Rs 39.7 crore. Health care, hair care and oral care segments have posted encouraging double-digit growths during the period under review. Overall, the FMCG business of the company, which accounts for 87 per cent of its sales, posted a growth of 14.3 per cent during the first quarter.

ITC Limited has reported a 25.7 per cent increase in net sales at Rs 2,849 crore during April-June 2006 and net profit improved by 16.8 per cent at Rs 652 crore. The company’s revenue from the cigarette business touched Rs 3,159 crore and that from its non-cigarette FMCG business Rs 359 crore in the June quarter of 2006-07.

Hindustan Zinc Ltd has posted a 205 per cent increase in net sales at Rs 1610 crore during April-June 2006 and net profit has jumped by 106 per cent to Rs 874 crore over the corresponding period previous year. Mined metal production was up 15 per cent at 1.33 lakh tonne, primarily due to the increased output from Rampura Agucha mines. During the quarter, refined zinc production has stood at 82,240 tonne compared with 57,631 tonne, a sizable growth of 42.7 per cent.

During April-June 2006, Tata Steel’s net sales have been higher by 10 per cent at Rs 3915.9 crore against Rs 3557.1 crore. The company has reported just 3 per cent increase in net profit at Rs 953 crore against Rs 924 crore. The company’s total steel production has risen by 16.8 per cent to 11.08 lakh tonnes from 9.48 lakh tonnes and its sale of steel has stood at 11.2 lakh tonne against 8.75 lakh tonne, a growth of 28 per cent.

Bajaj Auto has registered a 33.02 per cent growth in net sales at Rs 2,297 crore during the first quarter of 2006-07 and its net profit has grown by 27 per cent at Rs 266 crore over the corresponding period previous year. The company has reported motorcycle sales of 70,771 in the quarter compared with 30,718. The company has reported a 95 per cent growth in overall sales (including two wheeler and three wheeler) of 98,263 units during April-June 2006 compared with 50,493 units over the same period a year ago. The motorcycles exports have grown by 130 per cent to 70,771 units compared with 30,718 during the previous corresponding quarter.

S Kumar Nationwide Limited has posted a 28.6 per cent increase in net sales during April-June 2006 at Rs 265 crore and net profit has galloped by 663 per cent to Rs 25 crore over the same period a year ago.

Home textiles and soda ash manufacturer Gujarat Heavy Chemicals Limited has reported a jump of 19 per cent in net sales at Rs 169.7 crore during first quarter of the current financial year and the company’s net profit has increased by 45 per cent at Rs 31 crore over the corresponding quarter in the previous financial year on the back of increased sales.

Labour

The cabinet, on July 20, 2006, has approved setting up of the ‘Sixth Pay Commission’ for the central government employees. The Commission would also look into the quantum and need to sanction interim relief, if any, to the employees. The centre is expected to keep aside an additional Rs 20,000 crore annually, as pay and allowances for its 5.5 million employees (Minister of parliamentary Affairs). In 2005-06, the centre would pay Rs 50,000 crore to its employees, which works out to 1.56 per cent of GDP for 2005-06 at current prices. Following the Sixth Pay Commission, the total pay and allowances could increase by another 0.5 per cent of the GDP. According to the ministry of Information and Broadcasting, the state governments have also been consulted on the issue, as the state government employees are expected to demand similar hikes in their salaries. While the states like Karnataka , Assam , Tripura, Orissa, Manipur and Nagaland have demanded that the centre should share the burden of the increase in salaries of the state government employees, others like Madhya Pradesh and Gujarat have opposed it.

External Sector

The investment commission has recommended a two-pronged strategy to increase foreign direct investment inflow into India . This includes increasing visibility in countries like France , Spain , Canada and Taiwan which have little investment in India , while also increasing inflow from countries like the US , the UK the Netherlands and Japan .

After a decline of 2 per cent in the exports of 82 items including auto components to Thailand , in the first 12 months of the agreement, exports have jumped by 31 per cent between August 2004 and December 2005.

Information Technology

TCS, the country’s largest software company, has announced a 37.6 per cent rise in its net profit to Rs 797 crore during the quarter ended June 30, 2006 compared to Rs 579 crore in the corresponding quarter last year.

*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.