Historical Perspective

The savings bank movement launched by Reverend Dr. Henry Duncan in Scotland , by opening a saving bank in Ruthwell (Dufrieshire) during 1810 ¹could be considered as the precursor to the small savings scheme. Rev. Duncan’s decision was actuated by his conviction that importation of the English system of Poor Relief into Scotland would destroy the independence of the Scottish people, lessen their incentive to work, loosen family ties and sap initiative and vigour. His efforts were, therefore, directed at helping the poor to help themselves.

Motivation for the early savings bank movement could also be traced to the same causes as other philanthropic movements at the beginning of the nineteenth century: concern for the conditions of the poor, particularly the industrial working classes, dissatisfaction with the system of poor relief and the need for the virtues of thrift and industry.

The Royal Commission on the Taxation of Profits and Income (UK, 1955) ²observed: “ A complex of reasons, moral, social and economic, supports the view that a man ought to save some part of his income away from consumption during most parts of his life; his independence, his relationship with the other citizens, his duty as a member of the society whose future is pledged to economic progress. We recognise that changing conditions may change the relative emphasis of these different factors: but we do not think their total weight is in any sense less today than it was in the past’.

Harry Page Committee to Review national Savings (UK 1973) ³gave three main reasons for encouraging national savings from a wider economic management of demand; to improve rate of growth; and to assist in financing the Government’s borrowing requirements. However, government could not turn saving on and off like a tap. But under certain conditions. A rise in overall saving would enable the government to reduce taxation.

Indian Perspective

Post Office Savings Bank included in the Union List Vide item No. 39 of Seventh Schedule of the Constitution of India is the major medium through which the resources are mobilised.

Various Schemes for deposit mobilisation framed by the Central Government have the following legal backup.

Government Savings Bank Act 1873

Government Savings Certificates Act 1959

Public Provident Fund Act 1968

However, when ever the need for introducing non-statutory schemes executive orders are to be obtained for.

The principal acts under which the small savings schemes are being operated have been amended through the Finance Act, 2005 so as to allow investment in these schemes by individuals only. Consequently, the relevant rules also stand amended to this effect from 13^th May, 2005.

The main objective of the Small Savings Schemes are to provide safe and attractive investment options to the public and at the same time mobilise resources for the development.

All small savings schemes are operated through about 1.54 lakh post offices throughout the country, out of which 130000 are in rural areas to serve the needs for rural population. In addition about 8000 bank branches also operate public provident fund.

In India the Government was conducting savings bank business from the days of the East India Company. The first savings bank was established at the Presidency Bank of Bengal in 1833 ^{4 ,}and within the next two years, savings banks were opened in the other Presidency towns of Bombay and Madras . Savings banks were also opened in selected district treasuries in 1870 and in the Post Offices throughout India in 1882. Post Office Savings banks took over the savings bank business of district treasuries in 1886 and that of Presidency banks in 1876. Since 1896, all savings bank business of the Government is being conducted by the Postal department. However, small savings movement as a method of mopping up purchasing power to fight the rising spiral of Inflation ⁵had gathered momentum only in 1945.

The National savings Organisation (NSO) is the main medium through which the Government’s direct participation in the small personal savings rests in India . Government encourages personal savings in a variety of forms, but mainly thorough tax concessions. The small savings organisation makes attempt to make the savings movement as a mass movement through various means.

The main objective of the small savings organisation are

To make aware the people regarding the benefit of thrift.

Assess common peoples need of savings

Mop up savings for nation building, instead of borrowing from foreign fund.

The small savings organisation is not a profit earning organisation but a welfare organisation serving the masses with a social objective, i.e. to strengthen the economic condition of the people.

Main Characteristics of Small Savings Scheme

Small savings media are all backed by Government guarantees for fulfilment of the conditions under which they are offered to the public. They are mainly designed to attract money in small amounts from individuals. Accruals and withdrawals are in relatively small amounts from a large number of people. The scheme, however, serves not only lower income groups but also a sizeable number of high income earners under many schemes because of the attractiveness of tax exemptions. All small savings facilities have some form of tax exemption and also relatively higher returns. These holdings are usually subject to maximum limit of investment and are non-negotiable. They are generally liquid and can be redeemed or repaid at their original purchase price on demands though usually with some penalty in the form of loss of interest or bonus. They provide no protection against inflation in the form of capital gains. The major differences between different current small savings instruments are set out in Table 1.

Small Savings: Trends

The Government of India has launched a number of small savings schemes since 1950-51 in order to mobilise resources for five year plan investment efforts. Data of collections from small savings for the period 1951-52 to 2005-06 under major heads and Plan-wise accruals are presented in Table 2. Gross receipts, which amounted to a scanty Rs. 148 crores during the first year of the first five year plan recorded a staggering growth of 1151 times to reach an impressive amount of Rs. 170,421 by the end of the fourth year of the tenth five year plan or at a compounded annual growth rate of 13.9 per cent. In tune with the gross collections, the outstanding small savings also accelerated from a meagre amount of Rs. 175 crore to Rs. 203,454 crores . The compounded annual growth rate in the five and a half decades works out to be 14.0 per cent.

Small Savings : Scheme-wise Analysis

Several schemes have been introduced to suit the saving capacity and the needs of people of different income brackets from time to time. Table 3 and 4 presents the contribution of each scrip to the total collection of small savings. Deposits mobilisation holding a share of more than 50 per cent in the beginning of the nineties had to face the assault of the certificates schemes viz. NSC VIII issue and Kisan Vikas Patra , this two certificates scheme were mobilising about 42 to 45 per cent of the total small savings during 1995-96 to 2000-01 mainly due to a very high rate of interest and income tax relief in case of NSC VIII scheme. However, there after both this two scheme lost steam and started losing their share in the total mobilisation effort. In 2005-06 while Kisan Vikas Patra contributed 17.0 per cent , NSC VIII share was only 6.0 per cent.(See Table 1 for the description of various scheme).

The Post Office Savings Deposit Scheme is the oldest currently available scheme for small savers. The share of post office savings deposit more or less is a stable contributor for the small savings resource mobilisation effort of the authorities. It is an open ended scheme and can be opened with a small sum of Rs. 20 with a limit of Rs. 1 lakhs. This scheme which fetched an interest of 5.5 per cent per annum in April 1992 now attracts a lower interest rates of 3.5 per cent in Mar 2003. Still its contribution to the resource mobilisation effort is appreciable at 18.1 per cent. (Table 3).

The Post Office Time Deposit Scheme was introduced in March 1970. According to the National Saving Commissioner’s Report, the investment in these accounts mostly emanated from the Employees’ Provident Fund Collections. Forty per cent of these collections were invested in this scheme. However, with effect from April 1, 1986, due to changes in the investment procedure applied to the Employees’ Provident Fund, investment in Post Office Time Deposits were left out of the ambit of provident fund investment. However, the share of Post Office Time Deposits from a scant 3.8 per cent in 1989-90 gathered momentum in the resource mobilisation in the next 16 years, mainly because of the comparatively better interest rate, to reach a share of 11.9 per cent.

Monthly Income Scheme, with a maturity period of 6 years can be opened by an individual or jointly. The individual maximum limit is Rs. 3 lakhs and Jointly it is Rs. 6 lakhs. In 2005-06, by mobilising a sum of Rs. 46,848 crores captured the first place among all the current scheme with a share of 27.5 per cent. The regular and steady monthly interest income of Rs. 2000 has attracted most of the retirees in recent years to this scheme in absence of any other instrument of attractive rate of return for their retirement benefits.

Deposit scheme for retiring government employees was introduced from 1^st July 1989. The retired/retiring state and central government employees could invest their retirement benefits under the scheme which is being operated through Select SBI and Nationalised banks The investment under this scheme earn an interest of 9 per cent per annum with effect from 1.1.1999 payable half yearly. Value of deposit is exempt from wealth tax and the interest income is exempt from income tax. Investors can withdraw deposit after 3 years from the date of deposit. Deposit scheme for retiring employees of public sector companies was introduced from 1^st January 1991 in the same line as that of Retired government employees. Employees of public sector banks, LIC, GIC and other public sector companies could invest in this scheme. However this scheme has been taken out of the ambit of small savings scheme recently.

Senior citizen savings scheme was introduced with effect from 2^nd August 2004, . Scheme is available at post offices and designated banks. Persons of 60 years of age and above and retired employees of 55 years of age who are not yet 60 years are eligible to open deposits under the scheme. Deposits are subject to a maximum ceiling of Rs. 15 lakh per individual ( limited to retirement benefits in case of public retired employees below 60 years of age) and earn interest at the rate of 9 per cent per annum paid on a quarterly basis. Interest earned is eligible for tax benefits under section 80L of the Income Tax Act.

Rakesh Mohan Committee report on small savings schemes has proposed stringent recommendations, the primary one being making the interest rates offered by such schemes linked to market rates. Some of the recommendations like scrapping of the 6 per cent (Tax Free) GOI Bonds and deposit schemes for retiring government and public sector employees have already been implemented. Committee also recommended a interest rate reduction ranging from 0.75 per cent to 2.16 per cent from the prevailing small saving rates.

Small Savings vis-à-vis Some Macro Economic Variables

In order to gauge the degree of success attained in respect of resources mobilised through small savings, it may be appropriate to view these magnitudes in relation to some select macro-economic variables. Relevant data are presented in Table 5.

Secular trend behaviour of aggregate savings in India , historically, is impressive. The gross domestic savings (GDS) rate as a per cent of gross domestic product at current market prices (GDP) consistently improved over the years. The GDS rate moved up from a meagre 9.3 per cent in 1951-52 to 28.1 per cent (29.1 percent as per new series) in 2004-05. Household sector savings share in GDS, which was hovering around 60 to 80 per cent during the period 1951-52 to 1989-90, emerged as the single most important contributor in the nineties with about 85 to 95 per cent share in both 1993-94 and 1999-00 series. With in household sector savings, the share of financial assets savings, from a scant 2.4 per cent in 1951-52 accelerated in the next 55 years to contribute 46.7 per cent (1999-00 series) of the total household sector saving in 2004-05, mainly due to increased holdings of currency, bank deposits and higher investment in shares and debentures.

Notwithstanding, a sporadic rise in the share of physical saving during certain years, financial saving has been the mainstay of household sector saving. An attribute of household saving in financial assets has been a substitution, within such savings, from bank deposits to shares and debentures and mutual funds (See Table 6) reflecting both the expansion and diversification of the financial system and the emanation of a more mature investing class amenable to returns. Small savings finds its own ensconce in this financial scenario by contributing a steady 15 to 16 per cent in household savings.

Though financial assets contributed about 47 per cent, the savings in physical assets still make a contribution of more than 53 per cent in 2004-05.

In this connection , the findings of a survey conducted by NSSO in September 1993 to December 1984. among five states and four metropolitan areas entitled Pilot survey on Income, Consumption and savings revealed that the propensity for saving in physical assets in rural areas are higher than that in urban and metropolitan areas. However, Reserve Bank of India felt that the reported data was not of high quality.

Small Savings – States’ Participation

Co-operation and active support of the States is essential for increasing small savings collections as the small savers are spread over the urban and rural areas of the entire country. In order to encourage the active participation by States, the Central Government has operated a system, since 1952, of sharing the proceeds from small savings with them. It was decided in the Finance Ministers’ Conference held in October 1952 that the excess collection in a State over the target fixed for it would be made available to that State in the shape of loans for financing its development projects, subject to overall limitation that the Central Government first retained Rs. 45 crores out of the aggregate all-India collections. This stipulation, was , however, subsequently waived ⁶.

Accepting the National Savings Movement reorganisation Committees recommendations, the Government of India in May 1970 further liberalised the conditions for grant of loans to State Governments out of small savings. Repayment of loans is also spread over 25 years with a moratorium for the first 5 years. Thus, larger the net collections from a state, higher is the amount that will be returned to it by way of loan from the centre.

The above sharing arrangement has some sort of built-in attraction for States to maximise collections from their respective areas. According to the recommendations of National Savings Central Advisory Board in 1971-72, collection under the Public Provident Fund were also included in the net small savings collections for the purpose of grant of loans to the State governments ⁷.

The Union Finance Minister announced during the meeting of the National Savings State Advisory Boards in September 14, 1987, that the States’ share of loans out of net small savings has been raised by 8.33 per cent with retrospective effect from April 1, 1987. As a result, the States would now get three-fourths of the net small savings collection as long-term loans instead of two-thirds earlier.

States share of this savings was 75 per cent of the net collections till 1999. With a view to encourage stable long term savings, additional loan is advanced to a state government if the percentage of net small savings collections in the state exceeds all India percentage in this behalf by more than 5 per cent. Additional loan is given to the extent of 2.5 per cent of the net collections in the state for every 5 per cent increase in the state’s percentage over the all India percentage.

However, this system of sharing has taken a quantum change in 1999.

National Small saving Fund in the public account has been established with effect from 1.4.1999 ⁹. All small saving collection including PPF will be credited to this fund. Similarly all withdrawals of small savings by depositors would be made out of the accumulation in this fund. Balance in this fund is invested in Central and State Government securities.

The investment of net small savings collections in GOI securities will constitute a part of the internal debt of Government of India. The investment pattern will be as per norms decided from time to time by Government of India. 75 per cent of the net collections (Gross collection minus withdrawals by depositors) will be invested in States/UT with legislatures , from 2000-01, 80 per cent of net collections will be invested in States/UT with legislatures, in special State government securities. Debt servicing of these government securities will be an income of the fund. Cost of the interest and cost of management of the small savings will be an expenditure of the fund.

Interest at the rate of 12.5 per cent per annum is payable on these special securities issued by the respective governments during the year 2000-01. It was 11 per cent in 2001-02, 10.5 per cent in 2002-03 and it is 9.50 per cent per annum with effect from 1^st April 2003.

Pursuant to the recommendations of the expert committee on administered interest rates and other related issues chaired by Dr. Y V Reddy, the then Deputy Governor of RBI, since 1^st April 2002 the entire net collections under small savings schemes in each state and UTs with legislature are advanced to the concerned state/UTs as investment in its special securities.

With effect from 2002-03 a Debt Swap Scheme has been introduced to facilitate state governments to swap their high cost debt owed to GOI with additional market borrowings and a part of current small savings transfers. During 2002-03 states swapped high cost loans amounting to Rs. 13,766 crore with 20 per cent of small savings share from September 2002 to March 2003 and additional market borrowings. During 2003-04 high cost loans amounting to Rs 46,211 crore have been swapped with 30 per cent of small savings transfers and additional market borrowings. The receipts under debt swap scheme have been used by the central government to repay its liabilities to the NSSF. Which in turn has reinvested the amount received from such redemption in fresh government of India securities issued at market rates of interest.

Earlier the share of state was treated as long-term loan. Small Savings loans are among those loans not covered by the scheme of consolidation of eighth finance commission. Recovery of these loans suspended earlier has been resumed from 1985-86. The ninth and tenth finance commission have not suggested any change in the existing terms and conditions relating to central loans against the small saving collections. These loans carry moratorium of 5 years towards repayment of principal and the period of repayment is 25 years including moratorium.

Table 7 shows the State wise collections of small savings since 1951-52. Data indicate that Maharashtra occupied the pride of place with the maximum net collections in most of the years. However, its share in total mobilisation is dwindling faster from about 21 per cent in 1971-72 to 12 per cent in 2003-04 mainly because of better performance by other states during the period especially West Bengal (Rs. 8,440 crores) with a share of 14 per cent occupied the first place in resource mobilisation.

Securities issued by State to NSSF have emerged as the dominant component constituting over two-third of Gross Fiscal Deficit in recent years. But since interest rate is 9.5 per cent, a few states prefer market borrowings to NSSF. However, there is a view that securities issued to NSSF provides a secure, steady and regular source of borrowing for funding GFD with longer redemption profile unlike market borrowings that carries a lower maturity profile about ten years and large bullet repayments, even though the interest is lower. Hence, in the context of borrowings from NSSF versus market borrowings, there are trade-offs between lower interest rates of market borrowings and security and stability of NSSF. Small savings transferred to the states bear an interest rate of 9.5 per cent as compared to market borrowings at 8 per cent interest rate. Nevertheless, this argument can be put on the backburner with the hiking of interest rate by RBI and if there is no increase in the interest of NSSF fund lend to States.

Where lies the future ?

Small savings schemes recorded an impressive performance during the last five and a half decade by mobilising an huge amount of Rs. 170,421 crores in 2005-06 from a meagre amount of Rs. 148 crores in 1951-52 through the current small saving media of post office savings deposit, time deposits, recurring deposits, monthly income scheme, national saving scheme, NSC VIII issue, Kisan vikas patra, Senior citizens savings scheme and provident fund. Rakesh Mohan Committee Report National Savings recommends the discontinuation NSC and Kisan Vikas Patra. Committee also recommended a down ward revision of interest rate to align it with market rate. Schemes like 6.5 per cent (Tax free ) GOI Bonds and the schemes for retiring employees of government and public sector have already implemented.

Gross small savings in all these years contributed a steady share about 10-15 percent and in 2004-5 its share was 17.5 per cent of the house sector saving. This small savings scheme was able to achieve this through instruments viz. Post Office Saving Deposit, Time Deposit and Recurring Deposit, Monthly Income Scheme, Kisan Vikas Patra and NSC VIII issue. All other schemes contribution was meagre. In all these instruments, only PPF, KVP, and NSC VIII issue has major income tax concessions. However, all most all instruments have a good return in the form of interest at least at 8 per cent per annum.

The alignment of this interest with market rates will have its own impact in the resource mobilisation as is evident from the fact that the NSC which was the forerunner in mobilisation of resources in the mid nineties following the maxim ‘Double in Six Years’

because of high interest rate around 12 to 13 per cent became a non entity with the reduction of interest rate since 2001.

Hence, removal of tax concessions and reducing the interest rate will take away the avenues of savings from the rural farmer, whose income undoubtedly will increase with the diversification of farming from the age old foodgrain crops to cash and horticultural crops . More over the governments concern to bring up the living standards of the rural people by investing heavily in agriculture and small scale industries will create more jobs and individual income will record an upswing. Hence, it is imperative to introduce apt schemes for mobilising this rural surplus income for nation building. Of course banks will mobilise deposits , but villagers are not attracted by bank deposits due to illiteracy and aversion to publicity of banks and their procedures and formalities; unlike this small savings scheme whose operation for a illiterate farmer is much easier and his trust in post office utmost. Moreover, rural farmers prefer to hold cash and gold ornaments and other real assets as can be seen from the pact that still in 2004-05 the share of physical assets in total household sectors savings is about 53 per cent.

After all, saving is a personal preference and depend upon disposable income, but what is important is the mindset to save. Once the mind set is tuned in to save, it is the responsibility of authorities to encourage the investor to save in a particular way so that it will contribute to a large extent for the welfare of the country.

All said and done, with the removal of income tax concessions and return aligned to market rate, there will be a migration of saving to other saving mediums like investment in shares, mutual funds, etc. and hence small savings future lies in rural areas.

References

Page, Sir Harry : Committee to Review National Saving – Report (Her Majesty’s Stationery Office) June 1973 – pp. 34-35.
Radcliffe Baron, Cyril John : Royal Commission on Taxation of Profits and Income (Her Majesty’s Stationery Office, London ), June 1955 – p.39.
Page, Sir Harry : Committee to Review National Saving – Report (Her Majesty’s Stationery Office ) June 1973 – pp. 14-15.
Deshmukh C D : History of the Reserve Bank of India – 1935-51 ( Reserve Bank of India , Bombay ) April 1970 – p.78.
Government, Bombay : Pamphlet on Small Savings, Directorate of Small Savings (Finance Department, Bombay 1975) – p.3.
Kedari, Y S : Small Savings in India 1948-54, RBI Bulletin, December 1954, pp. 1158-70.
Khan, M Y : Mobilisation of Resource under the Small Savings: 1970-71 to 1974-75, RBI Bulletin, August 1976, pp.536-51.
GOI (2006), Receipt Budget 2006-2007, Budget Documents, Ministry of Finance, February.
RBI (2005), State Finances : A Study of Budgets of 2005-06, December.

* This note is prepared by R.Krishnaswamy

The central government has hiked the minimum support price (MSP) of paddy to be marketed during the 2006-07 kharif season (October-September) by Rs 10 per quintal. The MSP has been raised from Rs 570 to Rs 580 per quintal for `common' and from Rs 600 to 610 for `Grade A' varieties. The MSP have remained same in the case of maize, sunflower seed, moong and urad, groundnut-in-shell and soyabean black.

State Trading Corporation (STC) has floated a new tender to import 4 lakh tonnes of wheat in addition to the 35 lakh tonnes contracted earlier. Quality norms stipulated in the current tender have been kept unchanged as fixed for import of 22 lakh tonnes in June 2006, which has excluded fumigation norms, Plant Quarantine Order and raised the tolerance limits for various weeds. Out of total imports of 4 lakh tonnes, the delivery of 1.25 lakh tonnes each has been sought at Chennai and Visakhapatnam ports, respectively and that of 75 thousand tonnes each, at Kochi and Tuticorin ports, respectively, during September-October, 2006.

In the backdrop of ban on sugar exports since July 04, 2006, with the accumulation of inventories, the sugar mills in Maharashtra , Tamil Nadu and Uttar Pradesh have witnessed a drop in ex-factory realisations. Ex-factory realisations in Maharashtra have fallen by Rs 60 per quintal from around Rs 1,700 to Rs 1,640, while Tamil Nadu and Uttar Pradesh, each have seen a decline of Rs 40 per quintal from Rs 1,780 to Rs 1,740 and from Rs 1,790 to Rs 1,750, respectively. Besides the export ban, higher free sale quota (FSQ) releases by the centre has also contributed to the current bearish sentiments in Maharashtra .

As per the Spices Board, spices exports from the country have surged in terms of value by around Rs 49 crore (a growth of 8.6 per cent) during the first quarter of the current financial year 2006-07, to Rs 620 crore, while posting a decline of 6544 tonnes (7.3 per cent) to 83,375 tonnes in terms of quantity during the same period. The increase in value could be attributed to the good performance by value-added products such as spice oils and oleoresins, mint products, and curry powder, paste and condiments, which have contributed to around Rs 280.5 crore, nearly 45 per cent of the total spices exports.

According to the latest monthly bulletin of department of Food and Public Distribution, the aggregate offtake of grains during April-May 2006 has fallen to 57.6 lakh tonnes, 14.6 per cent below the 67.5 lakh tonnes lifted over the same period last year. The decline has been sharper, at 25 per cent (from 27.62 lakh tonnes to 20.73 lakh tonnes), for wheat, while offtake of rice has dropped by 7.5 per cent, from 39.89 lakh tonnes to 36.90 lakh tonnes. Poor inventory build-up has reduced the scope for liberally allocating grains from the Central pool for exports and assorted new welfare schemes.

Relief package for agriculture credit in debt-stressed six districts of Amravati , Akola , Wardha, Yavatmal, Washim and Buldhana in the Vidharbha region have been approved. The approval has been given for the entire interest waiver, which would be shared equally between the state and the central government. An additional flow of Rs 1,275 crore would also be ensured in these six districts in 2006-07.

Industry

The textile commissioner has announced that the project cost limit under the credit linked capital subsidy of the Technology Upgradation Fund Scheme (TUFS) will be raised to Rs 2 crore from Rs 1 crore and has urged power loom weavers "to take advantage of the TUFS before March 2007 for modernisation of the looms".

With textile exports set to grow 25 per cent in 2006-07, India is emerging as a preferred destination for sourcing textiles and apparel in the post-quota period; an increased number of buyers have been visiting India for direct sourcing while more vendors have been going abroad for direct selling. In keeping with the upbeat mood, Indian textile companies with strong presence in the US and EU markets, have planning to expand capacity and strengthen their retail presence in India to tap the huge potential of the domestic market.

The government has reconstituted the Khadi and Village Industries Commission (KVIC), which had been dissolved in October 2004 in an attempt to `revamp' it. The government has appointed a new chairperson, the zonal members, expert members in science and technology, marketing, rural development and technical education and training and ex-officio members of KVIC. The total KVI production during April-January 2005-06 has been estimated at Rs 9,150.65 crore (Rs 8,461.49 crore), registering a growth of 8.14 per cent. The total employment in the KVI sector has been estimated to have increased to 80.16 lakh (74.01 lakh) in 2005-06 up till January 2006.

According to Assocham, rural and semi-urban markets will drive the fast moving consumer segments business in the country to a compound annual growth of 50 per cent for the next six years. The FMCG segment is estimated to become a Rs 1,06,300 crore industry by 2012 from the present Rs 60,000 crore. Market penetration currently stands at about 2 per cent in the rural and semi-urban areas against the total growth rate of about 8 per cent and the Indian rural market with its vast size and demand base offers a huge opportunity to FMCG companies.

Infrastructure

The empowered institution formed under the Scheme for Support to Public Private Partnerships in Infrastructure has accorded `in principle' approval to 12 projects with the total investment estimated at Rs 2,643 crore of which about Rs 529.78 crore is to be provided as viability gap funding (VGF) support by the government. The projects will be constructed, maintained and operated by private partners who will fund the remaining amount of Rs 2063.31 crore. All the 12 projects are in the road sector in the States of Gujarat, Madhya Pradesh, Maharashtra and Rajasthan.

Council of Power Utilities (CPU), an apex body of power utilities in India , have made a strong case for reforms in coal, gas and railways sector. CPU has emphasised the need for setting up an independent regulatory framework to look into the efficiency of operation of the coal sector and fixing of price including captive mining and has appealed to the coal ministry to ensure speedy clearances to utilities seeking coal blocks in a specified time-frame arguing that the utilities be given choice to select coal blocks. For the gas sector, the council has suggested that there is a crucial need for a regulatory framework so as to ensure non-discriminatory access to gas sources and pipelines for power and other sectors as well as to promote market forces. So far as coal sector was concerned, the council has suggested that a transparent competitive process be introduced if a larger number of aspirants have expressed their desire for the same coal block. Further, it has suggested that the Centre form a hydrocarbon highway with oil companies to ensure right of use of gas pipeline on the lines of open access in the power sector. The council has called for the establishment of National Energy Council for taking up current issues faced by public utilities and provide solutions.

The power ministry, in a serious bid to expedite the implementation of upcoming ultra mega power projects of 4,000 MW each in six states, has asked the host states to acquire 11 per cent equity and become a stakeholder in these projects. This apart, in order to make the land acquisition and related procedures smoother, the states have been asked to shell out Rs 1 crore per 100 MW (Rs 40 crore each in six projects) as ‘commitment advance’ to the six SPVs already formed by the state-run Power Finance Corporation for these projects. The money would be used for early acquisition of land and coal mines. About Rs 20 crore would be contributed by the PFC for the same purpose and the money contributed by the beneficiary states and PFC would be returned to them by the successful bidders.

The petroleum ministry has asked the finance ministry to issue oil bonds for Rs 7,075 crore to the oil marketing firms — Indian Oil (including IBP), Hindustan Petroleum (HPCL) and Bharat Petroleum (BPCL) so as to partly compensate OMCs for the losses incurred by them on sale of sensitive petroleum products in the first quarter (April-June) of 2006-07; Rs 3,990 crore to IOC and IBP, Rs 1,627 to BPCL and Rs 1,458 crore to HPCL. The first quarter under-recoveries of OMCs stand at Rs 17,398 crore, which include Rs 9,811 crore in case of IOC and IBP, followed by Rs 1,627 crore for BPCL and Rs 1,458 crore for HPCL. The government has already committed to provide Rs 28,300 crore to the OMCs as oil bonds during 2006-07 to compensate them for their estimated losses of over Rs 74,000 crore on sale of sensitive petroleum products.

Power shortage is a major issue faced by Maharashtra ; this summer the state resorted to load shedding to the extent of 4,500 MW. To combat this issue, the state government has been increasingly looking towards alternative sources of energy to meet the requirements and the Maharashtra Energy Development Agency (MEDA), a nodal agency of the state government, has been entrusted with the task of developing these non-conventional energy resources. Some preliminary reports have indicated that geothermal energy and tidal power have good prospects in the state. As per MEDA estimates, the state can generate 4,000 MW of power from geothermal energy resources with Jalagoan having the maximum potential for developing geothermal energy.

Iron ore production in the country has almost doubled during the past five years, with the private sector's share in total production showing a marked improvement. Overall production has grown by 78.89 per cent, from 86,226 thousand tonnes in 2001-02 to 1,54,250 thousand tonnes in 2005-06. According to data, the 47.69 per cent (41,128 thousand tonnes) share of the private sector in the total iron ore produced in 2001-02 has improved significantly in 2005-06 touching 61.87 per cent (95,437 thousand tonnes) out of a total production of 1,54,250 thousand tonnes. At the same time, the share of public sector companies has come down from 52.31 per cent in 2001-02 to 38.13 per cent in 2005-06. Export of iron ore have also witnessed a quantum jump from 23,086 thousand tonnes in 2001-02 to 83,166 thousand tonnes in 2004-05, marking a growth of 260.24 per cent.

Orissa is currently witnessing a spurt in investment activity, specially in the infrastructure industries. The state has so far attracted private investments of over Rs 4,00,000 crore for setting up mineral-based industries such as steel mills, power plants, and alumina refineries. Besides, the State is also attracting huge investments in IT, tourism, and education. In the steel sector, 43 MoUs have been signed for the production of 58 million tonnes of steel annually at a total investment of around Rs 1,40,000 crore. The 44th agreement is likely to be signed shortly with Arcelor-Mittal for a 12-million-tonne steel mill at an investment of Rs 40,000 crore. The major players who have signed agreements are Posco, Tata Steel, Jindal Steel and Power, Sterlite Iron and Steel Company, and Essar. In the energy sector, apart from Reliance Energy, that is setting up a 12,000 MW power plant at a total investment of Rs 60,000 crore, major companies that have come forward to set up power plants include NLC, Tata Power Company, Sterlite Energy, KBK Nilachal, and Monnet Ispat. Three companies - GMR Energy, Aban Power, and Nav Bharat Ferro Alloys - have finalised their proposals. Besides, the state government has announced that it would launch a joint venture company to produce 1,000 MW. The projected investment in thermal power projects has crossed the Rs 1,50,000-crore mark. Additionally, development of ports is also attracting investments - the Dhamra Port Company has already initiated construction at Dhamra in Bhadrak district while private companies have also invested in construction of rail links and roads.

About 96 per cent of the Golden Quadrilateral is targeted for completion by December 2006 while the rest of the stretches which have been affected due to non-performance of the contractor, re-award of terminated contracts and also award of the Allahabad bypass in 2004 are scheduled for completion in 2007 as per the minister of state for shipping, road transport and highways. Additionally, it has declared that out of the total road length of 5,846 km, 92.5 per cent has been completed by June 2006 and the remaining work has suffered mainly due to delays in land acquisition, utilities shifting by respective state governments, contractual problems, litigation and excessive rains in some of the states.

Even as diesel prices are firming up, Indian Railways has been able to negotiate a higher discount for its high-speed diesel purchase in 2006 as compared to a year ago; the Railways has recently finalised its annual contract for sourcing high-speed diesel from oil marketing companies at a discounted rate of Rs 1,125.27 per kilolitre. The discount for 2006 is higher by Rs 90 per kilolitre, as compared to previous year's discount of Rs 1,035.27 per kilolitre. The Railways procures about two million kilolitres of high-speed diesel every year.

Air travellers may need to fork out more with the Airport Authority of India (AAI) starting to pass on service tax on licence fee charged on offices, duty-free shops, restaurants and other amenities in airports to airlines. AAI has recently paid over Rs 60 crore as tax on the licence fee, after the Central Board of Excise & Customs raised a demand. This is in addition to the tax on the Rs 200 ticket passenger service fee that has recently been imposed. Sources from a leading airline said the industry would now pass on the burden to air travellers by way of increased air fares.

Inflation

The annual point-to-point inflation rate based on wholesale price index (WPI) has gone down to 4.52 per cent for the week ended July 15, 2006 from 4.68 per cent during the previous week. The inflation rate was at 4.45 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 203.7 from 203.6 in the previous week (Base: 1993-94=100). The index of ‘primary articles’ group (weight 22.02 per cent) has risen by 0.3 per cent to 202.7 from its previous week’s level of 202, mainly due to an increase of 0.2 per cent, 0.4 per cent and 2.7 per cent in the price index of ‘food articles’, ‘non-food articles’ and minerals, respectively, as compared to the previous week. The index of ‘food articles’ has gone up to 203.6 from 203.2 in the previous week, mainly due to the higher prices of jowar, fruits and vegetables and gram. The index of ‘non-food articles’ has risen to 184.6 from 183.9, mainly due to the increased prices of sunflower, niger seed and soyabean. Similarly, the index of ‘minerals’ has also increased, mainly due to the higher prices of bauxite, magnesite, and silica sand. 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 declined marginally by 0.1 to 176.7 from the previous weeks’ level of 176.8, mainly due to reduced prices of textiles, ‘chemical and chemical products’ and ‘non-metallic mineral products’ and ‘transport equipment and parts’.

The latest final index of WPI for the week ended May 20, 2006 has been revised upwards; as a result both, the absolute index and the implied inflation rate stood at 201.7 and 5.05 per cent as against their provisional levels of 201.1 and 4.74 per cent, respectively.

Public Finance

The Reserve Bank of India in its review Macroeconomic and Monetary Developments has stated that the combined gross fiscal deficit of the central and state governments has been expected to decline by one percentage point to 6.5 per cent of GDP in 2006-07 against 7.5 per cent in 2005-06 due to higher tax collection and lower expenditures. The combined primary deficit has been estimated to decline to 0.8 per cent against 1.6 per cent and revenue deficit has been estimated to decline to 2.2 per cent against 3.1 per cent during the same period. The process of fiscal consolidation of the Centre and States is expected to continue in 2006-07, which would lead to a lower combined debt-GDP ratio of 78.6 per cent by March 2007, against 79.5 per cent in March 2006.

Tamil Nadu government has presented a revised budget for the fiscal year 2006-07, on July 24, 2006, with a fiscal deficit of Rs 7,231 crore. Taking into account the Public Account (net) and Contingency Fund (net), the overall deficit for the financial year 2006-2007 is estimated at Rs.4 crore. The state government has decided to abolish the resale tax and introduce VAT in the state with effect from January 1, 2007. The resale tax in the state would be abolished.

Banking

The Reserve Bank of India (RBI) in its first quarter monetary policy review has raised the reverse repo rate by 25 basis points. The reverse repo rate has now moved up to a four-year high of 6 per cent. This is the sixth 25 basis point hike since the rate hardening cycle began in October 2004 and the third hike since the beginning of 2006.

Bank of India has posted a 21.5 per cent rise in its net profit at Rs 209 crore for the first quarter ended June 2006 as against Rs 172 crore in the corresponding quarter last year due to robust growth in the interest income.

Bank of Maharashtra has recorded 35.2 per cent rise in its net profit for the quarter April-June 2006 as the net profit for the quarter went to Rs 61 crore from Rs 45 crore for the same quarter last year.

Driven by strong retail growth, ICICI Bank has posted 17 per cent hike in net profit at Rs 620 crore for the first quarter ended June 30, 2006 as against Rs 530 crore in the same period of the previous fiscal.

State Bank of India ’s net profit has declined by 34.7 per cent to Rs 799 crore against Rs 1223 crore in the corresponding quarter of the previous year due to low treasury income and higher staff cost.

Financial Markets

In the primary market of issuance, the Tech Mahindra will be tapping the market on August 01, with its public offer of around 12.7 lakh equity shares at a price band of Rs 315-365 per equity share, the issues closes on August 04.

During the week, positive sentiments prevailed in the market aided by strong first quarter results by major corporates like ONGC, Bharti Airtel, and firm Asian markets. The market remained impervious of the short-term interest rate hike by RBI, as it had already factored in the rate hike. As against the previous week, the sensex jumped by 594.32 points or 5.89 per cent as it closed at 10680.23 points, while CNX S & P Nifty rose by 185.80 points or 6.31 per cent closing at 3130.8 points. Meanwhile, BSE Small-Cap and BSE Mid-Cap indices has registered a gain of 5.28 per cent and 6.12 per cent, respectively over their respective previous week’s closing value. Among the sectoral indices, with the raising of key short-term rates by the RBI in its quarterly review, the BANKEX has registered the highest gain of 12.74 per cent, followed by BSE PSU at 8.71 per cent and BSE CG at 8.40 per cent.

As against the previous week, the FIIs have turned net buyers in the equity market to the extent of Rs 1038.7 crore with purchases of Rs 9402.4 crore and sales of Rs 7363.8 crore. Meanwhile, in the month of July, they have remained net buyers to the extent of Rs 1145.2 crore with purchases worth Rs 26555.2 crore and sales of Rs 25410.3 crore. On the other hand, the mutual funds have also turned net buyers in the equity market as compared to previous week to the tune of Rs 782.92 crore with purchases worth Rs 3026.42 crore and sales of Rs 2243.25 crore.

Meanwhile, on July 28, Sebi in an interim order has withdrawn the penalty levied on three entities which were allegedly involved in the benami demat accounts scam, viz., IDBI Bank, IL & FS Investmart and ING Vysya, wherein they have been allowed to open new dematerialised accounts. The regulator has said that the ban was lifted based on the material available and the submissions made by the above mentioned three entities.

The RBI has, on July 28, in consultation with the central government as well as Sebi permitted FIIs to offer foreign sovereign securities with triple-A rating as collateral to recognised stock exchanges in India for their transactions in the derivatives segments.

During the week under review, the total turnover in the NSE’s derivatives segment has risen by around 27.21 per cent to Rs 143442 crore from Rs 112759 crore, while correspondingly the average daily turnover has also increased to Rs 28688.4 crore from Rs 22551.8 crore in the previous week. Meanwhile, product-wise, the stock futures continued to contribute the bulk of trading at Rs 67681 crore and index futures at Rs 55270 crore.

Government Securities Market

The RBI has, through its weekly treasury bills auction, mopped up Rs 3155.75 crore through 91-day treasury bills, out of which Rs 305.75 crore has been raised under MSS; while it has mopped Rs 1500 crore through 182-day treasury bills, out of which Rs 1000 crore ahs been mopped under the MSS. The cut-off yields for 91-day treasury bills and 182-days treasury bills were set at 6.4391 per cent and 6.7582 per cent, respectively.

Meanwhile, RBI has also conducted the sale (re-issue) of 7.55 per cent 2010 dated security for a notified amount of Rs 4000 crore and the price and cut-off yield for the paper was set at Rs 99.53 and 7.6898 per cent, respectively.

RBI has announced the readiness of NDS-OM platform for enabling ‘When Issued’ transaction in government securities market and it has mentioned that the eligibility of a government security to trade on ‘When Issued’ basis will be specified in the auction notifications.

In the secondary market for gilt-edged securities, the yields have closed relatively flat over the week with the RBI raising its LAF reverse repo and repo rates by 25 basis points to 6 per cent and 7 per cent, respectively, citing pressure from money supply, deposit and credit growth which warranted caution. Nevertheless, the yield on the benchmark 10-year paper did rose to intra-day high of 8.29 per cent on July 25, following the rate hike and higher inflation rate of 4.68 per cent for week ending July 08, but it eased to close at 8.22 per cent. Even the auction of dated securities scheduled July 27 for a notified amount of R s4000 crore failed to have any significant impact on the market sentiments despite a lower cut-off price. The weighted average YTM on the 7.59 per cent 2016 bond eased to 8.2259 per cent on July 28 as compared to 8.3017 per cent on July 21.

In the call money market, the call rates have realigned themselves in accordance to the new reverse repo rate, following the rate hike done by RBI in its quarterly policy review, and traded near it throughout the week to close at 6.0-6.10 per cent. Though excess demand ahead of the dated securities auction led to a high demand for funds, the prevalent ample liquidity in the market smoothly met the funds requirements. The daily average outstanding amounts in LAF reverse repo operations conducted during the week stood at Rs 42883 crore vis-à-vis Rs 15,122 crore and Rs 9451 crore for CBLO and call market, respectively.

In the corporate bond market, the yields have eased over the week. The yield on triple-A five-year benchmark paper has eased to 8.70 per cent from 8.72 per cent in the previous week, while its spread over comparable gilt stood at 72 basis points.

Foreign Exchange Market

In the foreign exchange market, the rupee has appreciated against dollar as it closed at Rs 45.56 per dollar on July 28 as compared to Rs 46.93 per dollar on July 24. The rupee began the week on a weak note as it depreciated against dollar on July 24 on account of strong dollar in the overseas market, higher dollar demands by oil companies and the prevalent arbitrage opportunity in the NDF market. However, higher foreign inflows in the domestic equity market, weak overseas dollar, as well as the interest rate hike by the RBI resulted into the rupee appreciating sharply against dollar as it closed at Rs 46.81 on July 25; but it weakened on the very next day to Rs 46.85 per dollar on account of strong overseas dollar. Nevertheless, in the later part of the week, a weak overseas dollar, firm trends in the Asian markets and foreign direct investment related inflows in the domestic market has resulted into appreciation of the domestic currency against dollar to close the week at Rs 46.56 per dollar. Meanwhile, in the forward premia market, the premiums firmed with the six-month annualised forward premia rising to 1.10 per cent as on July 28 as compared to 0.87 per cent on July 21.

FMC in a move to put an end to the artificial price rise, especially in the commodities that have witnessed sharp rise, has said that the habitual defaulters of open interest will be suspended from trading. The regulator will impose penalty higher of the two; Rs 10,000 or an amount arrived at through a formula, for violation of more than 2 per cent of the prescribed limits. The amount of penalty will be arrived at based on limit exceeded multiplied by closing price of the day, multiplied by the number of days such violations continued, multiplied by 2 per cent.

NCDEX has decided to set up Spot Exchanges Limited in Rajasthan and West Bengal in the first phase with a total investment of Rs 15 crore. These Spot Exchanges swill help farmers at panchayat level to get real time prices, and also separate the commodity selling from the physical deliveries.

Insurance

The Life Insurance Corporation of India ’s new premium income in the first quarter of 2006-07 increased more than 245 per cent over a year ago as agents pushed the liberal ULIPs which have been phased out by IRDA from July 1, 2006. LIC earned new business premium of over Rs 8,000 crore during April-June 2006 against Rs 2,300 crore a year earlier. Almost 80 per cent of the new business premium in the current year was from the sale of the old ULIPs.

Rating Actions

CARE has assigned ‘AAA’ rating to the proposed upper tier II bond issue of HDFC Bank Limited for an amount of Rs 1000 crore. The assigned rating factors in the additional risk of deferral of interest/ payment of principal payments arising due to existence of lock-in clause in upper tier II bonds. Nevertheless, the bank’s strong market position, its good assets quality, extensive presence in the retail banking, robust risk management system, excellent technological infrastructure, proactive management, comfortable capital adequacy and overall good profitability parameters considerably reduces the additional risk of the instrument.

CARE has assigned ‘AA’ rating to the proposed upper tier II bond of Syndicate Bank for an amount of Rs 860 crores; also the agency has assigned ‘AA +’ to the bank’s outstanding lower tier II bonds. The bank’s majority ownership by government of India , low cost deposit base, growth in advances, sustained increase in net interest income; improvement in assets quality and comfortable capital adequacy position considerably reduces the additional risk of the instrument.

CARE has assigned ‘AAA’ rating to the proposed perpetual bond issue of ICICI Bank Limited for an amount of Rs 1000 crore. The assigned rating takes into additional risk arising out of lock-in clause in the perpetual bonds. The bank’s strong market position, resource raising ability, significant retail reach, strong technological infrastructure, comfortable capital adequacy positions, however, considerably reduces the additional risk of the instrument.

CARE has retained ‘ A (SO)’ rating assigned to the secured non- convertible debenture issues for an outstanding issue of Rs 133 crore of GMR Infrastructure Limited. The rating is based on credit enhancement measures and structured payment mechanism for serving the non-convertible debentures.

ICRA has assigned an ‘LAA’ rating to the Rs 2.75 billion tier II bonds programme of UCO Bank. The rating takes into account the 75 per cent government of India holding, wide spread branch network, the strong franchise in the North Eastern and Northern part of India, improving core operating profitability and comfortable liquidity profile.

ICRA has assigned a ‘LAAA’ rating to the proposed Rs 10 billion unsecured redeemable bonds programme of ICICI Bank Limited; the agency has also assigned ratings of ‘LAAA’, ‘MAAA’, and ‘A1+’ to the bank’s outstanding long-term debt, fixed deposits and certificates of deposits programmes. The ratings take into consideration bank’s strong position in domestic financial system as the second largest commercial bank, its improving profitability, and its extensive corporate relationships, besides the bank’s increasing retail franchise.

ICRA has assigned ‘LAA+’ rating to the Rs. 500 million subordinated debt of Can Fin Homes Limited (CFHL). Meanwhile, the agency has also reaffirmed the “MAA+” rating assigned to the fixed deposit programme and “LAA+(SO)” rating assigned to the Rs.500 million debenture programme of Can Fin Homes Limited (CFHL). The ratings take into account strong ownership, consistent earnings of the company supported by favourable low cost structure and low delinquencies, its comfortable liquidity position and superior capital adequacy.

Corporate Sector

Spentex Industries has acquired a spinning company of Uzbekistan, Tashkent-To’yetpa Teksil Limited, the largest yarn manufacturer in Central Asia , for Rs 380 crore.

Bharat Forge Limited, India ’s largest manufacturer of engine and chassis components, has posted a 5.3 per cent increase in net profit at Rs 51.5 crore during April-June 2006 as compared to Rs 48.9 crore over the same period previous year. For the quarter ended June 2006, the total income has risen by 18.5 per cent at Rs 443.82 crore against Rs 374.68 crore for quarter ended June 2005.

During April-June 2006, Tata Motors has registered a growth of 48 per cent in net sales to Rs 5,783 crore from Rs 3,907 crore over the same period a year ago. The company has posted a net profit of Rs 381.8 crore from Rs 272.7 crore, up 40 per cent. During the quarter under review, the company has sold 63,082 commercial vehicles (a growth of 69 per cent), 50,151 units of passenger vehicle (a rise 22 per cent) and its exports have grown by 45 per cent to 13,000 vehicles. During the quarter, the company’s market share in the bus segment has gone up to 58.3 per cent and in trucks to 64.6 per cent as compared with 32.7 per cent and 60.4 per cent, respectively. The passenger vehicles marker share grew to a nominal 20 per cent from the previous 19.6 per cent.

Maruti Udyog Limited has reported a sharp increase of 63 per cent in net profit to Rs 369.6 crore during April-June 2006 against Rs 226.5 crore during April-June 2005, on the back of surging volumes growth and increase in other income. It has achieved a 19 per cent increase in sales volumes to 1.44 lakh vehicles. However, its consumption of raw material, components, spare parts, dies, moulds, and stores increased only 11 per cent to Rs 2381.3 crore.

Bharat Heavy Electricals has posted a growth of 37 per cent in net sales to Rs 2,656 crore during April-June 2006 as against Rs 1,936 crore over the corresponding period a year ago. It has recorded an 85 per cent jump in net profit at Rs 236.7 crore as compared to Rs 127.9 crore during the same period. The profitability in the power segment increased by almost 90 per cent to Rs 408.9 crore, while the industrial segment recorded a marginal decline to Rs 36.2 crore.

Lupin Limited has posted a 33 per cent rise in net sales during the quarter ended June at Rs 485.1 crore and a 17.4 per cent increase in net profit at Rs 50.6 crore over the corresponding period previous year. Its exports have grown by 25 per cent to Rs 198.2 crore. The research and development (R&D) expenditure has stood at 6.8 per cent of the net sales compared with 5.3 per cent of net sales during the corresponding quarter last year.

Benefited from the increased crude oil and natural gas prices, Oil and Natural Gas Corporation (ONGC) has recorded an increase of over 24 per cent in net profit at around Rs 4,119 crore for the quarter ended June 2006 as against Rs 3,319 crore. The strong performance has come despite a substantial rise of 77 per cent rise in subsidy burden at Rs 5,120 crore as compared to Rs 2,876 crore.

Net sales of Jindal Stainless has remained almost constant at Rs 858.9 crore for the first quarter ended June 2006 from Rs 854.87 crore over the same period a year ago. It has reported a 23.2 per cent decline in net profit at Rs 50.8 crore as against Rs 66.1 crore.

Net sales of JSW Steel Limited has stood at Rs 1,569 crore during April-June 2006, marginally up by 2 per cent from Rs 1,538 crore. However, its net profit has gone down by 15 per cent at Rs 170 crore compared with Rs 200 crore in the corresponding period of the previous year.

Hindustan Petroleum Corporation has posted a net loss of Rs 607.7 crore for the quarter ended June 2006, higher than the net loss of Rs 507.9 crore suffered by the company in the same period previous year, though, its net sales have increased by 37 per cent to Rs 20,674crore, up from Rs 15,095 crore. Its performance had been adversely affected owing to high crude and product prices, which could not be passed on fully to consumers.

Bharat Petroleum Corporation Limited has registered a net loss of Rs 677.3 crore for the quarter ended June 2006 as compared to a net loss of Rs 431.3 crore over the same period previous year. The company’s total income has increased by 35 per cent to Rs 21,717.9 crore from Rs 16,095.3 crore.

TVS Motor Company has reported a growth of 25.4 per cent in net sales at Rs 921.8 crore during April-June 2006 as against Rs 735 crore over the same period a year ago. An increase in the costs of raw material and brand building (advertising) has resulted in a 14.6 per cent decline in net profits at Rs 21.3 crore compared with Rs 24.9 crore. The company’s expenditure on consumption of raw materials and components has risen by 25.8 per cent to Rs 611.6 crore from Rs 486.07 crore.

Jet Airways has reported a 25.6 per cent growth in net income to Rs 1,647 crore for the first quarter ended June 2006. Despite a good growth in sales for the first time it has registered a net loss of Rs 45 crore as against a net profit of Rs 95 crore in first quarter of the previous fiscal year. The company’s performance was impacted due to yield pressure in domestic and international operations and rising cost of fuel and other input costs. The domestic passenger yield (average revenue per passenger) for the period was 9 per cent lower than the figure in the previous year.

Nestle India has reported a 10 per cent growth in net sales to Rs 681 crore during April-June 2006. Despite an increase in overall sales, the company has witnessed a marginal 2.1 per cent decline in net profit at Rs. 81 crore over the same period a year ago.

External Sector

The Doha round of trade talks at WTO have been suspended with trade ministers of G-6 countries failing to arrive at a consensus following the United States ’ refusal to offer more cuts in farm subsidies. This collapse puts at risk some of the pledges made during the nearly five years of negotiations. For example, the EU had agreed to end all direct subsidies to exporters of farm goods by 2013.

With the collapse of Doha round of WTO negotiations, India is likely to put its proposed regional trade agreements on fast track. India has made a revised offer to Asean to break the deadlock, which was the result of disagreement on the issue of duty cut on palm oil, tea and pepper. While Asean wants India to make steep duty cuts, India had proposed a regime under which import duty would be reduced only for a fixed quantity of imports every year. Also is in pipeline, a comprehensive agreement on goods investment and services with the EU and a bilateral agreement with Japan .

According to Malaysian Ministry of International Trade and Industry’s (MITI) 2005 Report, the ASEAN economy is set to grow between 5-5.5 per cent in 2006 from last years 5.2 per cent, despite volatile crude oil prices and impact of cross border disease.

The ministry of commerce and industry is in the process of finalising a white paper on the issue of comparison of trade data, following criticism from some quarters. Prior to 2000, the commerce ministry used to compare provisional figures of the previous year with that of the current year. This was later changed to comparing final figures of the previous year with the provisional ones for the current year. However, since April this year (2006), the ministry has reverted to the practice it was following prior to 2000.

The government has revised merchandise export target of $120 billion set earlier to $125 billion for the current financial year. The revised target is 21 per cent higher than the actual exports of $102.7 billion achieved last year and 36 per cent higher than the $92 billion target set for 2005-06. The export target has been revised upwards, even though a note prepared for the meeting pointed out that the nominal 17 per cent growth in world merchandise trade seen during the last three years may not be sustained in the coming months in view of the expected deceleration in world GDP growth, consistently high and rising oil prices, firming up of interest rates and increasing global trade imbalances. Most of the labour intensive sectors like plantations, agriculture, marine products, leather, gems and jewellery, textiles and handicraft recorded a growth rate that was far below the average growth of exports.

India

despite being the world’s fourth largest economy in terms of purchasing power parity has a share of just 0.9 per cent in world merchandise trade. Also, despite the high growth of exports in the last four years, India could improve its position among world exporters by merely one notch to 29 in 2005 from 30 in 2004.

Interacting with export promotion councils and commodity boards to review the export target and export performance, Commerce and Industry Minister has asked each council to undertake a study of its exports destination wise and product wise vis-à-vis China . This exercise would help the councils identify their strengths and weaknesses and help the government formulate policies to boost their exports.

Information Technology

Infosys Technologies suffered the highest attrition rate (21 per cent) for senior staff amongst India ’s leading IT companies in 2005-06. In comparison, TCS saw a dropout rate of 7 per cent, and Wipro of 8 per cent. Of Infosys’ top 135 executives, who were paid an average monthly remuneration of at least Rs 2 lakh, including salary, commission, allowances and medical perquisites, 29 resigned in 2005-06. During the same period, Wipro lost 9 out of its 125 such personnel, and TCS lost 7 of its 85 highly paid employees. Most of the executive’s have quit to take on new assignments, which offered higher salaries, as a number of global IT majors have been setting up shop in the country.

Computer Generated Solutions (CGS) Inc, Rs 800 crore IT services provider plans to invest $10 million - $15million in India in next one year. The company plans to invest this amount in both organic and inorganic growth.

*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.