Introduction

Leather industry is the oldest and traditional industry in the country. It occupies a prominent place in the Indian economy due to its foreign exchange earnings and employment generation and huge potential for a higher contribution. However, India ’s share in the world leather exports as well as share of leather exports in our total exports is low. Export Import Bank of India in its occasional paper “Indian Leather Industry: Perspective and Export Potential” has highlighted this fact and has also analysed the problems and weaknesses of the Indian leather industry, which are inhibiting the true potential of the sector and has also suggested strategies that should be adopted to augment the productivity and exports in this sector. Following is the summery of the above mentioned occasional paper.

Global Scenario

The basic inputs or raw material for leather industry are hide and skins which inturn originate from livestock population. Trends in livestock population and its management, rate of mortality of animals and meat consumption pattern influence the availability of hide and skins.

Table 1: World Livestock Population				Table 2: Country-wise Share in 2005
(million heads)				(per cent)
	2005	2004	2003	Bovine Animals		Sheep and Lambs		Goats and Kids
Bovine Animals				Country	Share	Country	Share	Country	Share
World	1529	3250	1519	India	19	China	16	China	24
Developing Countries	1202	2921	1188	Brazil	13	Australia	10	India	15
Developed Countries	316	317	320	China	9	India	6	Pakistan	7
Sheep and Lambs				USA	6	Iran	5	Sudan	5
World	1079	1061	1040	Argentina	3	Sudan	4	Bangladesh	5
Developing Countries	691	676	659	Pakistan	3	New Zealand	3	Nigeria	4
Developed Countries	359	356	351	Ethiopia	3	UK	3	Iran	3
Goat and Kids				Sudan	3	South Africa	3	Indonesia	2
World	807	789	771	Mexico	2	Turkey	2	Tanzania	2
Developing Countries	752	734	717	Australia	2	Pakistan	2	Mangolia	2
Developed Countries	32	32	32	Others	37	Others	46	Others	31
Source: Compiled from FAO				Source: Compiled from FAO

Livestock population mainly consists of bovine animals, sheep and lambs and goat and kids. Developing countries have the largest share in the livestock population and thus are a major producer of hide and skins. However, ratio of output to livestock number is still low for developing countries implying untapped potential.

Developing countries accounted for almost 78 per cent of the world bovine population and 93 per cent of world population of goat and kids in 2005 and accounted for 53 per cent of total raw hides and skins production in 2004. World livestock population and country-wise share is provided in Tables 1 and 2.

China is the major producer of leather from bovine animals as well as sheep and goats since 2001. Earlier, Italy and India were the top producers of leather from bovine animals and sheep and goats, respectively.

World leather exports have grown by a CAGR of 7.3 per cent between 2000 and 2004. The top exporters of leather are given in the Table 3.

Table 3: Major Leather Exporters
(US $ million)
	2004	2003	2002	2001	2000
World	61405.98	54488.8	48637.57	48597.48	46702.16
China	13667.33	11572.72	9333.37	8388.83	7505.21
Hong-Kong	9607.17	8317.14	7545.58	7932.69	8120.58
Italy	7810.96	6952.92	6283.30	6383.58	5938.99
USA	3821.03	3408.67	3264.89	3593.03	3385.19
France	3581.39	3112.85	2699.7	2602.05	2364.66
Germany	2142.07	2066.41	1952.01	1851.18	1659.7
India	1621.19	1540.01	1320.19	1356.51	1420.12
Brazil	1438.99	1181.33	1072.47	956.30	828.81
Spain	1247.31	1222.06	1150.85	1045.52	903.89
Source: PC-TAS, HS, ITC/UNCTAD

Italy was the largest exporter of raw hides and skins, with a share of 17.4 per cent in 2004. Major exporters of leather articles, comprising saddlery and harness, travel goods, handbags, wallets and leather garments, are China with a share of 34 per cent, followed by Hong-Kong (17 per cent), Italy (11 per cent) and France (9 per cent). Furskins (produced in China , Hong-Kong , Denmark , Finland and Italy ) exports in the world are increasing gradually. China was the largest exporter of furskins with a 29.5 per cent share in total furskins exports in 2004.

USA , Hong Kong , China and Italy were the largest importers of leather in 2004. China , Hong Kong and Italy are the major importers of raw hides and skins, USA is a major importer of leather articles and Hong Kong is the largest importer of furskins.

Indian Scenario

The leather industry has a long history in India , especially in Tamil Nadu. During the 18^th century it was the cottage industry responsible for producing leather and making articles out of leather. With Britishers developing commercial interest, raw hides and semi-tanned leather soon became important items in Indian exports to England in the 20^th century. Municipal slaughterhouses were started to augment the quality and quantity of hides available for tanning. Thus raw hides moved away from the village for exports, thereby affecting the domestic cottage industries involved with manufacture of leather articles.

A crucial turn in the Indian leather industry came with the implementation of the recommendation of the Seetharamaiah Committee in 1973, which suggested ban on the export of raw and semi-tanned leather and facilitated the export of finished leather. This resulted in leather exports growing substantially over the decades.

At present Indian leather industry consists of 42000 small-scale industry (SSI) units, which account for 75 per cent of the total production. The share of SSI units in total leather exports has come down to 69 per cent in 2002-03 from 80 per cent in 1991-92 implying that economic reforms programmes helped some of the leather units to emerge as medium scale sector with technology upgradation and capital investment. Leather industry employs nearly 2.5 million people and unorganized sector forms a large part of the industry, accounting for 75-80 per cent of the market. The main production centers for leather and leather products are Chennai, Ambur, Ranipet, Vaniyambadi, Trichy, Dindigul in West Bengal; Kanpur, Noida and Agra in UP; Jalandhar in Punjab; Bangalore in Karnataka; Hyderabad in AP; Ambala, Gurgaon, Panchkula and Karnal in Haryana, Mumbai in Maharashtra and Delhi. West Bengal and Kerala are the biggest suppliers of raw material for tanning and manufacturing units. The concentration of tanning industries is mainly in Tamil Nadu with a share of 52 per cent.

Supply of Raw hides and skins in India

With about 15 per cent of world livestock population, India ’s share in world production is very low. This is due to ban on cow slaughter in some states, and low rate of collection of hides from the fallen animals and low average weight of leather per animal of about 10 kg as against the world average of 18 kg. The Central Leather Research Institute (CLRI) found the off-take rate for cattle in India is lower than the world average. As a result India ’s share in world production is low. However, india ’s capacity is much larger looking at the fact that it is one of the top livestock holding country as is clear from the Table 2.

Government Initiatives to Boost the Industry

India ’s policy response to liberalization has been reactive and proactive. Custom duty has been reduced to benefit import of a wide range of products including capital goods, raw materials, chemicals, components and consumables. In leather manufacturing, until recently, the Government’s industrial policy was to encourage the growth of small scale units through licensing and reservation of products. However, leather products were de-reserved from SSI units since 2003-04, and these products are given below.

· Sole Leather

· Kattai and bunwar leather

· Picking band leather

· Leather shoes upper closed, and

· Fancy leather goods and other novelty items.

Recent changes in policies relating to reservations, export requirements, foreign direct investments and technology transfers have given a boost to this sector.

National Leather Development Programme

National Leather Development Programme (NLDP), assisted by UNDP, was executed between 1992 to 1998, aimed at integrated development of leather industry through selected institutions/agencies in the country. The programme was successful in upgrading training systems for design and manufacture of footwear, garments and leather goods. Research and Development in the sector got a fillip under this programme. As second phase of the programme, Small Industries Development and Employment Programme, was executed between 1998 and 2002, focusing on building sustainable linkages between organised and unorganised leather sectors.

Indian Leather Development Programme

Indian Leather Development Programme (ILDP) was launched during the ninth plan aimed at integrated development of the leather industry. The objectives of ILDP were mainly to bridge critical gaps in infrastructure; to activate national agencies towards tackling perceived gaps in the industry; to promote and accredit productivity, value addition and employment; to undertake investment/trade development activities and to build an information base for leather industry. A scheme for tannery modernisation was also launched under ILDP.

Integrated Development of Leather Sector

With the objective of increasing the efficiency and economies of scale Integrated Development of Leather Sector (IDLS) scheme was launched during the tenth plan period. The tenth plan has identified the following priorities for the Indian leather sector:

· Employment oriented policy promotion;

· Readjustments to the de-reservation process;

· Readjustments to the removal of Quantitative Restrictions

· Promotional measures for compliance to WTO regime;

· Modernisation of all sub segments

· R&D backup and support

· FDI and large private investments and

· Strategies for aggressive marketing.

The government has also set up National Manufacturing Competitive Council (NMCC) in 2004 with the objective of policy dialogue to energise and sustain the growth of manufacturing industries.

Foreign Trade Policy 2004-09

The new Foreign Trade Policy (FTP) takes an integrated view of the overall development of India ’s foreign trade and essentially provides a roadmap for the development of this sector. Special policy initiatives announced by the FTP for leather and footwear sector are predominantly in the form of reduction in the incidence of custom duties on the inputs and plants and machinery. The government is also likely to relax export obligations and make imported components cheaper.

Institutional Framework

The government has set up various institutions such as Central Leather Research Institute (CLRI), Council for Leather Exports (CLE), Footwear Design and Development Institute (FDDI) and Calcutta Leather Complex (CLC) to facilitate the leather industry with new and innovative technologies, assist the government in formulating industry-friendly policies and to promote leather exports. Export Import Bank of India has also been closely associated with the export efforts of the leather industry.

Indian Leather Exports: A Brief Profile

India ’s export of leather and leather products has risen from a level of $59 million in 1960-61 to $2626 million in 2005-06. Although leather exports registered a negative growth in 2001-02 and 2002-03 due to slowdown in the US and European markets but recovered thereafter. While leather exports have increased in absolute terms, its share in total exports has decline over a period from a high of 8 per cent in 1990-91 to 2.6 per in 2005-06. The main export markets for India are Germany , USA , Italy , UK and France . Over the last few year Hong Kong has emerged as a major export destination. On the other hand, Italy , Saudi Arabia and Argentina are the major countries for India ’s imports.

Table 4: Export of Leather		Table 5: Destination of Indian Leather and Manufactured Exports
and Leather Manufactures		(US dollar million)
Year	Exports in	Country	1999-00	2000-01	2001-02	2002-03	2004-05
	US $ million	World	1592.16	1947.61	1916.63	1853.12	2293.90
1960-61	59	Germany	293.38	306.02	303.81	271.26	325.95
1970-71	106	UK	263.19	265.88	245.76	237.10	278.35
1980-81	493	USA	258.27	342.83	285.74	243.05	266.23
1990-91	1449	Hong Kong	54.59	98.37	121.62	166.10	236.87
1995-96	1731	Italy	165.32	238.87	259.34	250.75	232.59
2000-01	1951	Spain	66.62	100.33	101.15	110.20	165.00
2001-02	1910	France	82.73	88.67	88.77	86.83	127.37
2002-03	1848	Source: DGCIS
2003-04	2163
2004-05	2323
2005-06	2626
Source: Economic Survey
and DGCI&S

Composition of Indian Leather Exports has undergone a radical change, from being a mere exporter of raw hides and skins, to a status of an exporter of value added leather products. From 1991-92 India has been exporting only finished leather because of export restriction on semi-finished leather. Leather exports can be classified into the following categories:

Finished leather
Leather goods
Leather garments
Footwear of leather
Leather footwear components
Saddlery and Harness

Leather footwear is the largest component of leather exports. Other major sub sectors include finished leather, leather goods and leather garments.

Major Export Markets for Key Leather Products

Leather handbags: India ’s major export markets for leather handbags are USA , Hong Kong , Germany , UK , Spain and Japan . India has lot of potential in these markets, as it has unique advantage of economies of scale and capability of producing niche products.

Footwear: is a critical segment for the Indian leather industry as it is expected to be the engine of growth for the Indian leather sector. Currently, the trend in export of Indian footwear has been encouraging; however the trend for footwear components exports has been declining. Top importers of leather footwear uppers in the world are China , United Kingdom and Canada .

Leather garments: Germany and Japan were the largest importers of leather garments in the world in 2004. India was placed among the top three exporting countries of leather garments in these markets. Further, India is the largest sourcing partner of leather garments to Spain and Italy , which are the major markets for Indian leather garments. India ’s other major export markets are Germany , USA and France . But China is a major threat as its unit price of leather garments is cheaper than that of India .

Major Issues Affecting the Sector

The issues that are hindering the export growth of the Indian leather industry are as follows:

Environmental Issues

The leather industry is traditionally considered as a polluting industry in the tanning and finishing stages of the production chain. Pesticides, chemicals and organic materials are the main source of pollution at the tanning stage. Additionally, disposal of organic waste poses a problem to tanners since about 50 per cent of the original hides and skins are not converted into leather and remain as solid waste. Usage of many chemicals has been banned in various countries and limits have been prescribed for various toxic chemicals in the EU and USA . Global standards set by importing countries affect the entry and increase the cost of market access to products of developing countries. The product specifications for leather are constantly under review, leading to greater stringency.

Campaigns by NGOs, such as People for Ethical Treatment of Animals (PETA), related to cruelty against animals have led to boycott of Indian leather products by many foreign companies.

WTO Related Matters

With the advent of WTO, the average and bound tariffs for manufactured products have fallen in the developed countries, as the main objective of WTO is to promote international trade by reduction of tariffs and elimination of non-tariff barriers. However, the average and bound tariffs for leather products still remain relatively high. Many developed countries are implementing Technical Barriers to Trade (TBT) as Non-Tariff Barriers to restrict leather exports from developing countries like India .

The global market has become equally accessible to all countries due to WTO regulations and hence the importance on consistency in quality and pricing has increased considerably. Leather exporters have to meet domestic as well international environmental norms and incur costs for testing and certification requirements.

Chinese Competition

Chinese leather industry ranks top on the raw material resources, product yield and import and export trade in the world. Excellent infrastructural facilities along with the low cost utilities, optimum production capacities have resulted in price advantage for China . China ’s entry into WTO has also turned out to be a favourable factor; its leather exports have increased by three-fold after its entry into WTO. China is one of the major competitors to India ’s leather sector as it has the capability to produce large volume at low price.

Strategies and Conclusion

The Indian leather industry is targeting over US$ 5 billion exports by 2010 and is expected to add about additional 1 million direct and indirect jobs during this period. At present, the industry employs 2.5 million people directly and indirectly. However, to achieve this target following strategies are required to enhance exports.

Shifting of Manufacturing Base

Major world tanning firms are in the process of shifting their manufacturing base to developing countries due to high wage levels and strict environmental norms in developed countries. Factors such as availability of leather, production know-how, processing of shoes work in India ’s favour. These factors coupled with India ’s large raw material base could transform India as an alternate destination to China . Furthermore, the leather industry must actively canvass for FDI so as to meet the requirement for modernisation of the leather industry. India could effectively use these advantages to augment its share in global production and exports.

Government Support

Since leather is one of the focus sectors of the Indian government technology upgradation and modernisation of the entire leather value chain should be given priority thereby enhancing productivity, production, consistency in quality and global competitiveness. The modernization plans are very vital for Indian leather exports to attain its actual potential. Recently, the Government has approved Rs. 290 crores for modernisation and technology upgradation programme.

Strong Production Base

The industry should lay emphasis on design and technology, quality and innovation and economies of scale. Besides, skill development for the manpower engaged in this sector is also vital for enhancing the export potential of this sector.

Investment by Large Corporates

Indian leather industry is dominated by household and small-scale sectors. Corporate presence would enhance the capability of producing quality leather products by improving the scale of production, bring in quality consistency, capital infusion, technology upgradation and product development. The large capacity would also bring down the unit cost and increase the competitiveness in the international markets.

Sectoral Focus and FDI

Of the different segments of leather manufactures, the industry has largely focused on footwear sector for exports. However, India ’s share in global footwear exports is low. Higher investments and proper management of resources would help India to achieve a quantum jump in exports. It is observed that Brazil achieved remarkable success in footwear exports due to FDIs/JVS that were imparted in this sector.

New Markets

Diversification of export markets is another important strategy for Indian leather industry. In the post reforms period, the Indian leather industry has entered into newer markets of countries such as Croatia , Slovakia and Serbia , where India did not have presence earlier. Imports of leather articles in these countries have increased in the range of 20-30 per cent over a period of five years. Thus, identification and consolidation in new markets would sustain the export growth momentum for the Indian leather industry.

New Trends

The industry needs to keep itself abreast with latest fashion trends in the sector. It is observed that Italian buyers pay attention not only to the quality of the leather products but also to the accessories such as buttons, buckles etc used in the garments. It is imperative that adequate care is taken about the packing material.

Diverse Marketing Techniques

India needs to adopt aggressive marketing techniques in order to endure global competition. Market segmentation and identification of appropriate products for each segment would be important for successful market penetration. The industry could undertake business delegation to secure overseas investments and technology partnerships, besides building brand image. Developing countries like India should have two-pronged marketing strategy of simultaneously targeting both low price and high quality markets, rather than the traditional strategy of being a low price-low quality supplier.

Enabling Infrastructure

The development of the Calcutta Leather Complex is a positive sign as all amenities are available at one place. Such exclusive leather complexes where the required infrastructure like land, power, and common effluent treatment plants are available could be developed in other major production centres. Improvements in efficiency of ports, internal transport, customs procedures and supply chain management are necessary for augmenting the productivity and exports in this sector.

Environmental Issues

Environmental safeguards and the health and safety of the workmen are given top priority; however, new global requirements have not been fully absorbed by the industry. Although industries in some parts of the country have implemented these requirements, most of the small-scale units are not completely environmentally conscious. Time bound action plan is necessary so that our exports do not get rejected on environmental grounds.

Fairs and Exhibition

It is imperative that Indian exporters participate in fairs and exhibitions organized in the international market. It could serve as a good platform to showcase our products. Lack of information about Indian leather manufacturers also acts as a hurdle for international buyers.

Training Facilities

Training programmes should enable the industry to foresee and adapt to changing trends and technology. It is imperative that the staff is skilled and well qualified to train the students. Further, programmes need to be conducted to make Indian exporters aware of different standards and requirements in the global market to ensure that Indian exports do not get rejected on these grounds.

Reference:

Exim Bank of India (2006), “Indian Leather Industry: Perspective and Export Potential”, Occasional Paper No 10.

* This note has been prepared by Abhilasha Maheshwari

The State Trading Corporation of India (STC) has floated a fresh tender for import of 16.7 lakh tonnes of wheat on August 30, 2006, totaling the quantum of wheat imports for the public distribution system so far to 55 lakh tonnes. Of the 16.7-lakh tonnes tendered quantity, 8.45 lakh tonnes are expected to arrive in the west coast ports of Kandla (3.5 lakh tonnes), Mundra (2.7 lakh tonnes), New Mangalore (1.2 lakh tonnes) and Mumbai (1.05 lakh tonnes). The balance 8.25-lakh tonnes are to land in the east coast ports of Visakhapatnam (3.55 lakh tonnes), Chennai (2.75 lakh tonnes) and Tuticorin (1.95 lakh tonnes). The entire wheat is to be delivered between November and February 15, 2007. Besides this, private flourmills and traders are reported to have signed contracts for around 5 lakh tonnes at 5.2 per cent duty. In addition, the State-owned MMTC and PEC Ltd have contracted 1.5 lakh tonnes on behalf of private domestic customers. However, the ministry of agriculture has discarded the possibility of duty-free imports of wheat beyond the 55-lakh tonnes quantity contracted by the STC so far. According to a report by United States Department of Agriculture (USDA), the country, with the wheat import touching to 8.5 million tonnes is likely to emerge as the largest wheat importer in 2006.

As per the department of Consumer Affairs, out of the 38.3-lakh tonnes wheat contracted by the State Trading Corporation of India (STC), a total 7.26-lakh tonnes has so far arrived in the country. The first two vessels of 92,000 tonnes arrived during April-May 2006, followed by another 2,94,761 tonnes by August 27, 2006. While the vessels carrying 2,58,680 tonnes have been currently at discharge at Chennai, Cochin and Vizag ports, the 2 others with 80,319 tonnes have been under fumigation, quality check and berthing at the Vizag and Chennai ports. Another seven vessels with 5.25 lakh tonnes and three more with 1.76 lakh tonnes are expected to reach the country by September 15, 2006.

The centre has cut monthly wheat allocation under the targeted public distribution scheme (PDS), by 63 per cent to 8,72,000 tonnes on account of low stocks is the central pool. The total food grain allocation to states has also been cut by 23 per cent to 4.49 million tonnes. Wheat allocation to above poverty line (APL) families have witnessed the largest reduction of 88 per cent to 1,83,995 tonnes, while that to below poverty line (BPL) families has been cut by 15 per cent to 4,40,728 tonnes. For Antyodaya Anna Yojana, it has been slashed by about 10 per cent to 2,47,291 tonne. The government has instead increased rice allocation to states to over 3.6 million tonne from about 3.5 million tonne each in April and May 2006. States like Karnataka, Gujarat and Madhya Pradesh have started allocating coarse grains such as ragi, maize and jowar to cut down on wheat provision, leading to increasing the coarse grain allocation over 37,000 tonnes from June from about 8,000 tonnes each in April and May.

State-run MMTC Ltd has bought 5,000 tonnes of chana from Singapore-based trading house RV International at $524-$529 per tonne, which would be delivered during November-December 2006. MMTC had initially floated a tender to import 15,000 tonnes, for which, it had received 8 bids ranging between $524-$702 per tonne. RV International had submitted the lowest bid for supplying 3,000 tonnes at about $524 per tonne, but later agreed to increase the quantity to 5,000 tonnes.

The ministry for Food, Public Distribution and Consumer Affairs has asked the Food Corporation of India (FCI) to release an additional 3.5-lakh tonnes of maize for the poultry industry at a concessional rate of Rs 450 per quintal, over and above the 1.25-lakh tonnes already allowed from the FCI stocks at Rs 550 per quintal. The additional quantity is to be allocated to nine States through the respective state animal husbandry departments. While the major poultry industry states like Andhra Pradesh, Tamil Nadu and Maharashtra would get 11.89 lakh quintals, 9.65 lakh quintals and 4.5 lakh quintals, respectively, farmers in Karnataka, Orissa, Kerala, Madhya Pradesh, Gujarat and Goa would be distributed the remaining quantity in proportion.

As per initial estimates released by Cotton Advisory Board (CAB), cotton production is expected to rise 6 per cent to 270 lakh bales of 170 kg in the ensuing cotton year (October-September 2006-07), from an expected 92.66-lakh hectares of land under cultivation, in spite of damage caused in major cotton producing states like Maharashtra and Gujarat due to floods. Damage has been estimated at 3.22 lakh hectares (out of 23.28 lakh hectares of estimated cultivated land) and at 2.16 lakh hectares (out of 30.82 lakh hectares) in Gujarat and Maharashtra , respectively.

In order to give a respite to the sugar industry in the backdrop of ban on export, the ministry agriculture has extended the deadline for the unsold free sale quota of August up to September 7, 2006. Besides, the ministry has reduced an all-India quota for free sale for September 2006 to 14 lakh tonne from 15 lakh tonne. This would benefit the sugar growing states such as Maharashtra, Karnataka, Tamil Nadu and Gujarat , with having unsold quota of 5 lakh tonne for August 2006, where the ex-mill sugar prices have dipped to Rs 1,630 per quintal.

As per the statistics provided by Vidarbha Jan Andolan Samiti (an NGO working for the cause of peasants), the number of suicides by farmers in Vidarbha region of Maharashtra has increased to 103 by the end of August 2006. The number of suicides recorded were 16 in June 2005, which had risen to 68 a year later and 90 in July 2006. The central government has announced a special package of Rs 3750-crore for this region, however, poor implementation of which as per the Samiti, has resulted in arise in the number of suicides.

Industry

Pharmaceuticals

The chemical and fertilisers ministry has announced a huge package for the revival of state-owned pharma PSUs including Indian Drugs and Pharmaceuticals Ltd (IDPL), yet both government officials and the industry have opined that the effort, worth Rs 2,700 crore, is not practical due to the high cost of the production of PSU pharma companies compared with private sector rivals. The huge manpower of the PSUs coupled with an obsolete technology are the biggest hurdles in any revival plan as per the chemicals ministry. The revival of IDPL hinges on producing those drugs that are not manufactured by private sector companies since they do not have a lucrative market. However, the revival plan of IDPL is being defended on non-profit, strategic like provision of drugs by IDPL during teh Mumbai floods a year ago and the aim of making quality drugs available to the masses under various health schemes and to help in optimum utilisation of assets of these PSUs.

Infrastructure

Power

Power Grid Corporation of India Ltd (PGCIL) has announced the synchronisation of the northern, eastern, north-eastern and western grids following the commissioning of the transmission system associated with the Tala hydel project in Bhutan and the East-North inter-connector system; this is one of the largest synchronously connected grid in the world with a total generation capacity of 88,000 MW from 250 power plants and would facilitate free flow of power from surplus to deficit regions. The Tala transmission line project has been implemented by a joint venture of Power Grid and Tata Power, the country's first public-private partnership in the transmission sector.

The domestic airline industry is considering a hike in the fuel surcharge being charged by them at present on the back of an increase in domestic prices of aviation turbine fuel (ATF) that accounts for almost 35 per cent of their operating cost. The price of ATF has been consistently moving upwards; the avearge ATF price at around Rs 38,000 a kilolitre in April 2006 has touched Rs 42,000 a kilolitre in June and peaked at more than Rs 46,000 a kilolitre in August 2006. The increase would be in the range of Rs 50-100 and would apply on routes operated by both the Airbus and ATR aircrafts. If the fuel surcharge is hiked, it would be third successive month that the surcharge moves northward; in July the airlines increased the fuel surcharge to Rs 500 from Rs 300 and in August it has been again increased to Rs 650.

The ministry of non-conventional energy sources (MNES) is working towards stepping up the country's energy generation from renewable energy sources from the current 8,000 MW to around 17,000-18,000 MW during the 11th Plan period. A bulk of this additional capacity building would come from co-generation from sugar mills as the capacity from this is expected to rise from the present 900 MW to about 5,000 MW. Also, encouraged by the prospects of the projects under wastes to energy (WTE) programme implementation across the country, the ministry is hoping to end the 10th Plan period with a cumulative generation capacity from non-conventional energy sources at around 10,000 MW.

Most of the Indian steel manufacturers have announced price cuts in the range of Rs 500-1,000 for hot rolled flat steel; Steel Authority of India Ltd has reduced prices of hot rolled flat steel in the range of Rs 400-600 and cold rolled flat products by around Rs 300-400 while increasing the prices of semi finished and wire rods by around Rs 300-400 while Tata Steel and Jindal South West Steel (JSW) have cut prices by around Rs 1,000 each and Essar Steel has reduced prices by 3 per cent.

Several domestic companies such as Ashok Leyland, NTPC, Nuclear Power Corporation, Tata Power as well as American and Russian firms are in talks with the Indian Railways for entering into long-term agreements for supplying electricity since the Railways proposes to draw power from independent power producers (IPPs) in order to further reduce the cost of electricity per unit. It has floated tenders inviting bids from IPPs for supplying 350 MW power in Gujarat and Maharashtra and is considering floating tenders for other areas, including Andhra Pradesh, Tamil Nadu, Bihar and West Bengal .

Asia, led by India , will experience high growth in international air traffic and the region will witness the second highest growth in international air traffic till 2009, only to finish second after Middle East , according to the Centre for Asia Pacific Aviation (CAPA). The CAPA report estimates that international air traffic in Asia Pacific will have an average annual growth rate of 6.2 per cent while it would be a little higher for Middle East where the traffic will grow by 6.8 per cent; next to Middle East and Asia Pacific is Africa which is expected to register a high growth rate of 5.8 per cent. The report projects a world-over growth of around 5 per cent in international air traffic. The growth will mostly be concentrated in the Asia and Middle East region as the markets in Europe, North America and Latin America are already touching a reaching saturation point. Most of the regions had witnessed a robust market growth in 2004, led by Middle East and Asia Pacific with 24.8 per cent and 20.5 per cent growth respectively. The Asia Pacific region is expected to register a 6.4 per cent annual traffic growth for the next 20 years, according to the Boeing market projections. In India , the number of international passengers has grown from 1.91 million in 2004 to 2.25 million in 2005, registering a 17.6 per cent and in 2006 it is expected to grow by over 20. per cent. According to International Air Transport Association, in terms of revenue passenger kilometres (RPK), which measures the actual passenger traffic, Africa has registered the highest growth in July 2006 over the July 2005; air traffic in the region has grown by 13.1 per cent, closely followed by Middle East with 12.9 per cent. Asia 's performance, however, has not very high in RPK terms, with only 4.4 per cent growth in July 2006 over the same month previous year.

Inflation

The annual point-to-point inflation rate based on wholesale price index (WPI) has gone down a tad to 4.91 per cent for the week ended August 19, 2006 from 4.92 per cent during the previous week. The inflation rate was at 3.71 per cent in the corresponding week last year.

The WPI in the week under review has gone up by 0.2 per cent to 205.1 from the previous weeks’ level of 204.7 (Base: 1993-94=100). The index of ‘primary articles’ group (weight 22.02 per cent) has increased considerably by 0.7 per cent to 205 from its previous week’s level of 203.6, mainly due to an increase of 0.7 per cent, 0.6 per cent and 1.1 per cent in the price index of the ‘food articles’, ‘non-food articles’ and minerals, respectively. The index of ‘food articles’ has gone up to 206.2 from 204.8 in the previous week, mainly due to the higher prices of fruits and vegetables, wheat, gram, milk, condiments and spices, bajra and maize. Similarly, the index of ‘non-food articles’ has increased to 185.9 from 184.7, mainly due to the higher prices of raw cotton, copra, rape and mustard seed. The index of ‘minerals’ has gone up to 407.1 from the previous week’s level of 402.8, mainly due to the higher prices of manganese ore, steatite, fire clay and magnesite. The index of ‘fuel, power, light and lubricants’ group (weight 14.23 per cent) has declined marginally to 328.3 from its previous week’s level of 328.4 due to the lower prices of furnace oil. The index of ‘manufactured products’ group constituting the maximum of 63.7 per cent of total weight, has risen by 0.2 to 177.7 from the previous weeks’ level of 177.4, mainly due to the higher prices of textiles, base metals, and ‘non-metallic mineral products’.

The latest final index of WPI for the week ended June 24, 2006 has remained unaltered; as a result both, the absolute index and the implied inflation rate have stood at their provisional week’s level at 203.6 and 4.84 per cent, respectively.

Banking

The National Housing Board (NHB) has registered a net profit of Rs 87 crore for 2005-06, an increase of 98 per cent over the previous fiscal. The total disbursement of the bank stood at Rs 5,997 crore in 2005-06, compared to Rs 8,389 crore in 2004-05. By 2009, the bank hopes to disburse 60 per cent of the total disbursements towards rural development. The bank is also hoping to launch the reverse mortgage loan scheme for senior citizens by this year-end. NHB is also planning to launch the productive housing in rural areas (PHIRA) scheme targeted towards the rural customers and has already initiated talks with banks like SBI, Andhra Bank and Canara Bank for the project and would also likely to approach the regional rural banks for the same. NHB is also in talks with banks to build integrated townships in the rural areas around the proposed industrial clusters. The integrated clusters would include schools, hospitals, market places among other things.

The public sector banks (PSBs) have opened about 5.5 lakh no-frill accounts this year. The finance ministry had earlier asked the banks to look at expanding their reach and network in the country, especially in the semi- rural and rural areas, by targeting the low-income groups. Banks have also relaxed identification norms for those who seek to open no-frill accounts. Though the ministry has not set any targets for banks, they are focusing largely on no-frill accounts. Though no-frill account holders are not expected to keep any minimum balance, a few banks have made it mandatory for account holders to keep a small token amount. It may be noted that taking the cue from the state-owned banks, a number of foreign and private sector banks are also exploring the possibility of offering no-frill accounts to their customers.

The country’s second largest commercial bank ICICI Bank has joined hands with Mitsubishi UFJ Securities Co, a unit of Japan ’s biggest bank by assets. As per the non-exclusive memorandum of understanding (MoU), both the firms will explore possibility of providing reciprocal support for their respective customers in merger and acquisition and corporate finance areas. The alliance is expected to facilitate the merger and acquisition deals by Japanese companies operating in India . The two entities will focus on developing ties in the areas of corporate finance and mergers and acquisitions.

The Reserve Bank of India (RBI) has instructed scheduled commercial banks (SCBs) to adhere to its earlier circulars and honour the Interest Subsidy Eligibility Certificate (ISEC) issued by Khadi and Village Industries Commission for extending credit to khadi village institutions and entrepreneurs. It has come in the wake of KVIC said that some of the banks are insisting on collateral for extending credit to khadi institutions and entrepreneurs.

Public Finance

The fiscal deficit of the government, for April-July 2006-07 has seen a rise of 11.5 per cent to Rs 86,404 crore over Rs 77,480 crore recorded in the corresponding period of the previous year. It has touched 58.1 per cent of the total budgeted estimates of Rs 1,48,686 crore amounting to 2.2 per cent of the GDP. The revenue deficit for the period under consideration, has stood at Rs 78,210 crore, constituting 92.3 per cent of the entire budget estimate for 2006-07. The higher growth in fiscal deficit has mainly been driven by the sharp growth in plan expenditure during the period. The plan expenditure for April-July 2006 has stood at Rs 45,971 crore, higher by 22.15 per cent in relation to the Rs 37,632 crore recorded during the corresponding period of last year.

Central government has announced financial aid of Rs 250 crore for Karnataka to take up drought and flood relief works on a priority basis. The financial aid would be released immediately to take up relief work. As many as 18 districts in the state have been experiencing drought and overall the state has been experiencing a deficit rainfall of 28 per cent whereas, floods following the discharge of surplus water from reservoirs in Maharashtra have hit another six districts of the state. The damage caused to property and crops by the floods has been estimated around Rs 1,406 crore. The state government has sought an aid of Rs 500 crore from the union government.

The Reserve Bank of India has opposed the view of planning commission to postpone the targets set by FRBM (Fiscal Responsibility and Budget Management) Act, 2004 on government spending and fiscal profligacy by two years. The bank is of the view that the move would have macroeconomic and budgetary implications, besides impacting the government’s credibility.

The state government of Kerala has introduced ‘Lucky VAT’ - a lottery scheme to improve sales tax collections from August 29, 2006. As per the scheme, every consumer who would buy goods worth Rs 1,000 and above, which attracts VAT, would get a scratch card that carries a maximum cash prize of Rs 1 lakh. The scheme has been conceived against the backdrop of falling sales tax revenue since the introduction of VAT in April 2005. It has been introduced in accordance with a proposal made by finance minister in the maiden budget in June 2006. The lottery scheme was adopted from Mexico where it has proved to be successful.

Financial Markets

With the secondary market for equities turning buoyant, the primary market has began to see a number of issuers tapping the market which had turned subdued following the volatility in the stock market. Some of the issues to tap the market are Action Construction Equipment, Atlanta Ltd and Hov Services Ltd; of these he former two would be in the market from September 1 to 7 and the last one would tap the market between September 4 and 7.

Action Construction Equipment Ltd (ACE) has been involved in manufacturing material handling and construction equipment is tapping the market between September 1 and 7 through issue of shares of Rs 10 each in a price band of Rs110-130 per share with an issue size of Rs 50.6 crore – 59.8 crore at the two ends. The proceeds of the issue are to be used for building a new plant for loaders, expansion of range for tower cranes along with expansion of existing capacity.

Atlanta Ltd has been involved in diversified infrastructure activity and has been considering expanding its activities across construction, mining and real estate areas. The proceeds of the issue will go towards funding the Nagpur-Kondhali BOT project, purchase of mining and construction machinery and meeting incremental working capital requirement.

The markets have continued to remain buoyant given the easing of international crude oil prices, strong FII inflows and firm Asian markets. Further, the report that the government has decided against a rise in domestic fuel prices has supported the trend. The BSE sensex and NSE ‘s S& P CNX nifty have risen by 1.78 per cent and 1.46 per cent, respectively. Among the sectoral indices of BSE, except for metal index all others have recorded positive gains with the highest gains registered by BSE Bankex. However, the market has remained impervious of the RBI’s report on capital convertibility wherein the committee has asked for a complete ban on participatory notes, which is a frequently used instrument by FIIs.

For the month of August, the FIIs have been net buyers of equities to the extent of Rs 4643 crore with purchases of Rs 27,238 crore and sales of Rs 22,595 crore; their net investment in dollar terms stands at US $ 999 million. Even mutual funds have remained net buyers for the month to the extent of Rs 426 crore with purchases of Rs 8,852 crore and sales of Rs 8,425 crore.

Despite settlement of the contracts, the intra-day volatility has remained lower than what has been generally observed. Also, the rollover of contracts to September expiry has remained robust. The nifty futures have traded at a discount to the spot, while the CNX IT has traded at premium to the spot index.

The daily average turnover on the NSE’s futures and options segment has increased to Rs 24,960 crore from Rs 22,533crore in the previous week.

Government Securities Market

The cut-off yield for 91-day TB has been set higher at 6.44 per cent in the auction held on August 30 as against 6.40 per cent set in the previous week.

Call rates have ruled around the reverse repo rate throughout the week on account of robust liquidity and also borrowing requirements have remained subdued due to advance covering by banks.

During the week, the market has remained buoyant due to reduced interest rate uncertainty induced by the volatile international crude oil prices and firmness in US yield rates, both have somewhat eased.

In the latest RBI annual report, RBI has expressed concerns about the inflation, which cautioned the market participants. But, the heightened expectations that the Fed would end its rate-raising campaign and RBI would follow the same path revived the buying activity. Further, the finance minister’s clarification that the bonds issued to oil companies would not carry SLR status has reinforced these sentiments.

Bond Market

ICICI bank has tapped the market through the issue of perpetual bonds for Rs 300 crore by offering 9.98 per cent with a call option at the end of 10 years and if the option is not exercised then the coupon would be 10.98 per cent.

Foreign Exchange Market

The rupee-dollar exchange rate has ruled in a range bound manner as the investment inflows, firm stock market and lower global crude oil prices supported the rupee while the gains have been capped due to persistent corporate demand for dollars.

Forward premia has risen even as the bond yields in US as well as domestic markets have eased. Trading in forward market is expected to be volatile as the market absorbs the RBI’s report on full rupee convertibility.

Commodities Futures derivatives

Following the Forward Market Commission’s (FMC) imposition of client level limits, NCDEX and MCX have also confirmed a mandatory penalty to be effective from September 1. Since the announcement of the open interest limit, volumes and turnovers have plunged across domestic commodity exchanges. In the present scenario, clients would not be able to corss the specified open position limit at any cost.

Corporate Sector

Bajaj Auto Limited has registered an 11 per cent increase in the total two-wheeler sales in August (Aug) 2006 at 1.82 lakh units as against 1.64 lakh units over the same period a year ago. The total three-wheelers sales have stood at 26,150 vehicles for Aug 2006 as compared to 22,782 over Aug 2005, an increase of 15 per cent.

TVS Motor Company has sold 83,014 motorcycles in Aug 2006 compared to 59,675 units in Aug 2005, a rise of 39 per cent. The company has reported total two-wheeler sales at 1.35 lakh units compared to 1.03 lakh units over Aug 05, recorded a growth of 32 per cent. TVS Scooty sales have increased to 23,118 units over 21,873 units. The recent launch of pink colour Scooty Pep has received a great response from lady customers. On the export front, the company has reported its highest-ever exports growth of 71 per cent at 11,008 units.

Car market leader, Maruti Udyog Limited has posted a 15.7 per cent increase in domestic sales at 48,259 vehicles in Aug 06 as against 41,717 vehicles in Aug 05. The company's total sales have stood at 51,855 vehicles in Aug 06, including 3,596 units of exports. Sales of Maruti 800 have dipped to 6,425 units during the same period from 7084 units, down 9.3 per cent. The sales in the domestic compact car segment (comprising Alto, WagonR, Zen and Swift) have grown by 22 per cent to 32,466 units while sales in the midsize segment (Baleno and Esteem) have risen by 14.6 per cent to 2,837 units in Aug 2006.

Nagarjuna Construction has received order of Rs 114 crore from Times of India Group for construction of new printing press complex at Airoli in Navi Mumbai and the project is to be completed within 18 months.

Punj Lloyd has secured order of Rs 349.73 crore from Indian Oil Corporation (IOC) to undertake construction work at the naphtha cracker project in Panipat, Haryana. The order is to be executed on engineering, procurement and construction basis and entails the construction offsite and storage facilities at IOC’s naphtha cracker project.

Engineering and construction major, Larsen and Toubro has received an order worth Rs 1,150 crore from IOC for setting up a captive cogeneration power plant for the company’s naphtha cracker project in its petrochemical complex in Panipat at, Haryana. The plant would have an installed capacity of 227 MW of power and over 800 tph of process steam.

Bajaj Auto Limited has signed a Memorandum of Understanding with the Maharashtra government for setting up of Rs 2,000-crore greenfield plant/project to manufacture three-wheelers and light four-wheelers at Chakan, near Pune, marking its foray into the light commercial vehicle (LCV) segment. Chaken factory would have a capacity to produce 5 lakh vehicles annually and in its first year of operation it will produce 1.5 lakh LCVs. The plant, which is being set up over a 250-acre plot, will be employing about 1,000 people.

Wockhardt Limited has received approval from the US Food and Drug Administration for marketing cefotaxime sodium injection in the US market. Cefotaxime sodium is the generic version of Sanofi Aventis claforan injection and is a broad-spectrum antibiotic used in treating a wide variety of infections.

Procter & Gamble Hygiene and Healthcare has registered a 27.4 per cent increase in net profit at Rs 46.6 crore for the quarter ended June 2006 from Rs 38.4 crore over the same period a year ago. However, the company’s net sales have declined by 34 per cent to Rs 113 crore compared with Rs 171.7 crore. For the year ended June 2006, its net sales have decreased by 17.3 per cent to Rs 566.7 crore compared with Rs 684.9 crore over a year ago. While net profit has increased by 15.5 per cent to Rs 132.2 crore over Rs 114.4 crore. The decline has attributed to the divestment of the detergent contract manufacturing business.

Labour

Even as the government yet has to push the Pension Fund Regulatory and Development Authority (PFRDA) Bill which has proposed to shift from the defined benefit pension scheme to defined contributory scheme, the Prime Minister has shown interest following a suggestion by the trade unions for establishing ‘Workers’ Capital Trust’ which would manage provident funds along with all pension and gratuity matters. According to the Indian National Trade Union Congress (INTUC), the trust can have representation from both, the workers and the government. It has also added that such an integrated fund could provide better returns.

The Prime Minister has given clear signals that the government should push labour reforms, at least partially in the textile industry. The surge in textile exports and thereby growing sectoral importance has caused an urgency to bring about labour reforms in the form of tackling issues like contract labour and extending working hours in the sector from the current 48 to 60 hours a week. Similarly, the issues like violation of labour norms, under which the government will be confronted with questions like legal retrenchment, refusal to register trade unions and non-compliance of Wages Act also need to be addressed.

External Sector

In an attempt to remove the impression that special economic zones will lead to land scams, the commerce ministry has pointed out that 9140 hectare of land, out of a total 26880 hectares for the 150 approved zones, has already been in possession of state industrial corporation. At the same time, the rush for setting up of special economic zones has generated demand for manpower to establish and run these SEZs. According to conservative estimates 3000-4000 management level jobs will have to be filled in the coming months.

To support its opposition of a move to lift the 150 cap on SEZs Finance ministry has calculated that SEZs will cause a revenue loss of Rs 175487 crore, four years from now on account of various waivers. The reserve bank has also expressed its concern regarding revenue losses arising out of SEZs. RBI considers SEZs as a catalyst to growth but at the same time it is worried that the zones would aggravate the uneven pattern of development by diverting resources from less developed areas.

*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.