Current Economic Statistics and Review For the Week 
Ended October  7, 2006 (40^th Weekly Report of 2006)

Theme of the week:

Mergers and Acquisitions in India: A Review of Recent Trends*

In India , the process of liberalisation and globalisation has influenced the functioning and governance of Indian companies, forcing them to refocus their strategies. In the process of refocusing, mergers and acquisitions (M&As) have been a normal phenomenon; they represents one of the most effective methods of corporate restructuring and have, therefore, become an integral part of the long-term business strategy of corporate enterprises. A wide range of Indian companies have been active in the M&A area. In the presently competitive environment, the concept has been gaining increasing importance as a way of improving competitiveness and efficiency. In the changing economic scenario, these have emerged as a vital growth strategy among the corporates and increasingly getting accepted. In recent years, Indian companies have undertaken acquisitions in international markets in order to globalise their operations and improve their efficiency and international competitiveness.

The term merger is a legal process in which one or more of the companies loose their identity. It is a unification of two companies into a single entity that usually occurs in a friendly manner. On the other hand, acquisitions can take place by hostile takeovers by purchasing stock of the target entity or through acquisition of all or substantial number of its assets. Broadly, there are two ways to grow a business: organic and inorganic. In the organic path, a company achieves growth through expanding infrastructure activities and customer base and thus revenues and profits, whereas an inorganic process provides instantaneous growth, so M&As can be considered as an inorganic strategy of growth. In the global environment this strategy has become vital for achieving economies of scale, improving efficiency, reaching out to new markets and building new capabilities. Reasons to acquire a company are many they range from industry consolidation to market penetration and spread of customer bse with forward or backward integration but at the same time synergy with existing business. It also enables a company to expand its product portfolio, which ultimately results in better financial performance and increased market share and so on.

A broad classification of mergers is as follows:

            Horizontal mergers take place where companies producing similar range of products merge together. This strategy is used by companies that seek to sell their products in several markets so as to widen the market coverage, several small companies are created; each company markets the product in different market segments.

Vertical mergers takes place between ccompanies producing different layers of goods or services for one specific final product. By directly merging with suppliers, a company can decrease reliance and increase profitability. An example of a vertical merger is a car manufacturer purchasing a tyre company.

Conglomerate merger occurs between firms that are involved in totally unrelated business activities or in different industries.

II

Regulatory Framework for M&As

In India , Mergers and Amalgamations are governed by the provisions of the Companies Act, 1956, while acquisition of companies comes under the provisions of Takeover Code of SEBI.

In India, the institutional arrangements which have a bearing on the evolution of regulatory framework for M&As are: (i) various provisions of MRTP Act, 1969; (ii) Clause 40 of the Listing Agreement; (iii) amendments to Clause 40 in 1990; iv) creation of SEBI in 1992 and adoption of takeover code in 1994; v) Bhagwati Committee on Takeovers and adoption of a new code in 1997; vi) amendments to the code in 1998; and vii) Amendments to the code in 2006. At present, the Takeover Code of the SEBI is the major regulatory mechanism relating to acquisition of companies.

The SEBI Act enacted in 1992 empowered SEBI to regulate substantial acquisition of shares and takeovers. In November 1994, SEBI issued guidelines for substantial acquisition of shares and takeovers, which are widely referred to as Takeover Code 1994. Thus, for the first time, substantial acquisition of shares and takeovers became a regulated activity. These regulations introduced several new provisions allowing hostile take-overs, competitive bids, revision of open offer, withdrawal of open offer under certain circumstances, and restraining a second offer on the same company within six months by the same acquirer.

As there were many loopholes in the Takeover Code 1994, a committee, chaired by Justice P.N. Bhagwati, was appointed in November 1995 to review the same. The SEBI accepted Bhagwati Committee recommendations, albeit with some minor modifications and they formed the basis of a revised takeover code adopted by SEBI in 1997, known as “SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997”. The new code provided for the acquirer to make a public offer for a minimum of 20 per cent of the capital as soon as 10 per cent ownership and management control have been acquired. Again the Bhagwati Committee was reconstituted in 1998 to examine the provisions of “SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997” relating to consolidation of holdings, threshold limit and acquisitions during the offer period. The Takeover Code 1997 was amended in October 1998 on the basis of the recommendations of the re-constituted Bhagwati Committee. Recently, in May 2006, SEBI has revised the takeover code and broadened the definition of promoter. As per the revised code, any company in which a group of individuals or companies hold 20 per cent or more of the equity capital in that company and also hold 20 per cent or more of the equity capital of the target company, would qualify as part of the promoter group.

III

A Review of RBI’s Data Base

In India , after SEBI, Reserve Bank of India has also kept a track of M&As activities. In this section, we have considered a period of six years, that is, from 2000-01 to 2005-06, for which data are tabulated from RBI sources. Table 1 shows the total number of mergers and acquisitions held since 2000; it is clear that not only have the number of deals gone up many times, but the average size of the deals has also increased drastically.

During the year 2000-01, domestic mergers occurred in several sectors like transport and communication, food products, finance, computer software, chemicals and plastics and drug and pharmaceuticals. On the other hand, cross-borders M&As were reported mainly in the information technology (IT) sector. The process of restructuring continued during 2002-03 via M&As and the most important deals in 2002-03 were either due to privatisation of major public sector undertakings or deals struck by major domestic companies and multinational corporations (MNCs). In 2003-04, M&As were higher in food and beverages, textiles, chemicals electronics and automobile sectors including automobile ancillaries. In terms of value, however, acquisitions were led by the mining industry, followed by chemicals, electronics, financial services, electricity and food and beverages. In 2004-05, deals were concentrated mainly in sectors like chemicals, non-metallic mineral products, computer software and mining.

The telecom sector entered a consolidation phase with smaller players selling out to the larger ones. The high growth and steady revenue streams in the ITES have also led to an increase in M&A activities. During 2005-06, the process gathered further momentum, reflecting efforts at consolidation to face enhanced competition. The value involved in acquisition deals increased by over 70 per cent during the year. Significant activities were also observed in the overseas acquisitions of foreign companies by the Indian corporates. The maximum mergers were witnessed in the financial services, chemical industry, textiles food and beverages, machinery and trading activities. As regards acquisitions, maximum activity was observed in respect of electronics, financial services, IT, machinery and textiles. In the chemicals sector, drugs and pharmaceuticals segment recorded the highest M&A activities due to the tremendous export potential of the industry and also for clinical research and development, lower cost production faculties as well as the vastness of the market.

M&A activities are expected to remain strong in the coming years, as the Indian corporate sector is likely to intensify efforts towards consolidation to reap efficiency gains and economies of scale. Financial services, IT, pharmaceutical and manufacturing sectors such as auto components are amongst the sectors likely to see continued high levels of M&A activities in view of growing international interest in India as an outsourcing base.

Recently, a new trend of buying out companies bigger in size compared to the acquirer has been witnessed in so far as of Indian corporates are concerned. For instance, consider Tata Coffee’s acquisition of Eight O Clock Company (EOC). In 2005, EOC’s net sales at Rs 504.8 crore had been higher than Tata Coffee’s sales turnover of Rs 190 crore for fiscal year 2006. By this acquisition, Tata Coffee gets access to hundred-year-old American brand and one of the major coffee retailing firms of the US at the same time captures a substantial market share. Engineering major Punj Lloyd Limited, which had a consolidated income of Rs 1,717 crore in 2005-06, acquired Singapore-based engineering firm SembCorp valued around Rs 2,933 crore.

IV

Sector-wise M&As

Pharmaceutical

The pharmaceutical industry is an affluent segment of the Indian manufacturing sector. It leads the M&A wave after information technology and Indian pharmaceutical companies are increasingly focusing on global acquisitions to enter new markets. This trend is fuelled by the need to explore newer markets and products for future growth in this industry. Further, acquisitions also act as mechanisms to alleviate regulatory constraints in penetrating overseas markets. Therefore, Indian pharmaceutical companies are adopting the strategy of acquiring existing generic drug marketing companies that hold valid drug licences. The pharmaceutical companies have been aggressively making acquisitions overseas, especially in the US and Europe , in the past two to three years. Most of the acquisitions have been in the generics space and have resulted in Indian firms gaining access to manufacturing facilities in potential areas like European Union.

M&A activity has picked up pace in the Indian contract research segment as lower costs and better infrastructure make established Indian companies an attractive target for multinational firms. The global pharma companies are now increasingly outsourcing clinical research to India . Compared to the other countries contract research activities are in infancy in India . To sustain in the competitive world and to compete against MNCs, pharma companies have to be innovative and develop their own products, which require huge investment in R&D. At this stage, consolidation is considered to be a better option for inducing growth. Many organised companies like Ranbaxy, Sun Pharma, Wockhardt, DRL and Cipla, have already adopted the consolidation strategy. They are trying to strengthen their base in the regulated markets by acquiring small companies in Europe and the US . Indian companies prefer European companies for acquisition because the valuation of companies in Europe is lower than American companies.

Table 2 exhibits Indian pharmaceutical company’s overseas acquisitions during 2005-06. Pharma companies have been aggressively making overseas acquisitions from past two years. DRL, Ranbaxy, Matrix Laboratories and Torrent Pharma have made large acquisitions by taking over generic drug manufacturers in the EU market. Domestic pharma companies view Europe as counterweight to US generic market. In March 2006, Ranbaxy acquired three companies: it acquired 96.7 per cent of Romania’s largest independent generics drug company, Terapia SA, for $ 324 million; it bought the generics business Allen SpA, a division of GlaxoSmithKline, in Italy; and it also acquired a generics company, Ethimed NV, in Belgium at an undisclosed amount.

Automobile

The automobile industry, especially auto ancillary/component companies, has been at the forefront of the acquisition spree. The reasons for acquiring business abroad are many; it gives the Indian companies easier access to foreign original equipment maker (OEM); it helps the company to broaden its customer’s base, capturing more market share, enhance its product portfolio, etc. Buying a foreign company is not only a means of acquiring physical assets abroad, but also expanding the client base and orders. Acquisitions and alliances has become an important part of the growth strategy of companies as they seek to acquire global scale. Several international auto firms have realised the advantages of sourcing their components from India . India with its strong engineering skills represents a low-cost outsourcing destination for auto companies worldwide. Therefore, Indian auto ancillary companies are increasingly looking at foreign acquisitions to grow and sustain their market competitiveness. Acquiring overseas firms facilitate Indian companies by reducing delivery time. Further, as overseas auto ancillary firms are not registering adequate financial growth, they are available at relatively lower valuations.

            Several auto ancillary companies like Bharat Forge, Sundaram Fasterners and Amtek Auto have acquired companies while companies like Sona Koyo Steering and UCAL Fuel Systems have picked up shares in foreign companies. Table 3 showing several overseas acquisitions made by Indian auto ancillary companies with Bharat Forge emerging as the leader in it.

Bharat Forge

Bharat Forge, the world’s second largest forging company, continued with its global acquisition forays and has made several strategic acquisitions during 2005-06; Federal Forge in USA, Imatra Kilsta in Sweden together with Scottish Stampings in Scotland, UK, all of which have been now wholly-owned subsidiaries of it. The company’s global acquisition strategy consisted of two key elements; to broaden the company’s customer base by bringing in a wider portfolio of product offering to a larger group of customers and to have global facilities that assist the company in working with OEMs as an engineering and development partner. The strategy, therefore, focused on acquiring such companies that had product complementarities and manufacturing facilities, which were synergistic and could be leveraged for cost effective and flexible production system. The company has witnessed a healthy growth in sales turnover and also in profitability during 2005-06. Its net sales on a consolidated basis have grown by 52 per cent at Rs 3,072.6 crore over 2004-05 and net profit has risen by 24.6 per cent to Rs 250.5 crore.

Apollo Tyres

Apollo Tyres has acquired Dunlop Tyres International Limited, South Africa for Rs 290 crore in all cash deal. Dunlop is headquartered in Durban and owns subsidiaries in Zimbabwe and the United Kingdom . Through this acquisition, Apollo Tyres would use Dunlop’s distribution network for exports and make entry into Africa, and would also bring in products made by Dunlop to India . Also by this acquisition, Apollo's base of manufacturing units enlarges to include facilities in Durban and Ladysmith in South Africa and Bulawayo and Harare in Zimbabwe . In future, this will help Apollo Tyres to emerge as the largest tyre company in India with a capacity of 900 tonnes. Market leader MRF has capacity of 750 tonnes and Apollo’s current capacity is also 750 tonnes. The deal will also make Apollo one of the largest companies globally with a manufacturing presence in three countries. As a part of acquisition, Apollo Tyres will gain access to two plants in South Africa of 75 tonnes each and one in Zimbabwe of 30 tonnes. Through this acquisition Apollo Tyres will get various advantages like increase in its product profile, market access, R&D, manpower resources and the ability to optimise on cost, product and manufacturing facilities.

Tata Motors

            In 2004, Tata Motors acquired South Korea ’s Daewoo Commercial Vehicle Corporation (DCVC), the truck-making unit of Daewoo Motors for Rs 459 crore. Daewoo Motors, the parent company of DWCV started in 1970, gradually became Korea ’s second largest conglomerate. However, with increasing debt burden it was bankrupt in 2000. DWCV spun off from its bankrupt company Daewoo Motors in 2002. The Daewoo acquisition gave the company an entry into China , the world’s most lucrative automobile market. Post-merger, the new company, Tata Daewoo Commercial Vehicle Limited (TDCV), recorded a 26 per cent growth in its overall vehicle sales to 5,734 units during 2005-06. TDCV has sold 3,131 HCVs in the domestic market in India to achieve a 28 per cent market share. TDCV also entered the South Korean MCV market in January 2006 and achieved a 13.5 per cent market share in the January-March 2006 period over there. TDCV exports continued to grow during the year and represented over two-thirds of South Korea ’s total heavy truck exports.

FMCG

Indian FMCG majors are spreading their wings to foreign locals through the acquisition route. Various Indian FMCG companies are going for overseas acquisitions, because such acquisitions allow domestic companies to gain an easy foothold in overseas markets. Further, the cost of brand building is lower as the consumer is already familiar with the brand. Companies like Godrej Consumer products, Tata Tea and Marico Limited have acquired major brands in the USA , UK and Bangladesh markets.

The FMCG industry has witnessed some biggest M&A deals in the recent time. During the first quarter of the current fiscal year, Godrej Beverages and Foods, an associate of Godrej Industries, has forayed into the organised confectionery market in India by acquiring 100 per cent shares of Nutrine Confectionery Company for Rs 250 crore including its brand and manufacturing unit. The company has already taken a decision to launch a new brand, Maha Maha Lacto, on the strength of Nutrine’s existing Maha Lacto brand. In January 2006, Marico has acquired the herbal soap brand Manjal, from the Kerala-based Oriental Extractions for an undisclosed amount. Companies like Dabur and Proctor and Gamble have moved to acquire complementary products portfolios to strengthen their position in the market place and increase their leverages with distributors and large retailers.

Dabur-Balsara Acquisition

In January 2005, Dabur India Limited (DIL) has entered into a definitive agreement with Balsara Group, known for popular brands like Babool, Promise and Odomos, to acquire controlling shares in three of its companies; 99.4 per cent in Balsara Hygiene Products; 100 per cent in Balsara Home Products; and 97.9 per cent of the shareholding in Besta Cosmetics Limited - at the cost of Rs 143 crore in all cash deal. Through this acquisition Dabur has forayed into a relatively new field of home and personal care product. Balsara had accumulated losses during 2004-05. The acquisition of Balsara has helped Dabur to widen its product portfolio and also strengthen its oral care and home product segments. The major challenge in front of Dabur, when it acquired Balsara, was to convert Balsara’s losses into profits and Dabur has successfully achieved this goal during 2005-06, when the loss-making entity generated profits of Rs 14.9 crore. The home care category came to Dabur’s fold after Balsara’s acquisition. Its famous brands include Odonil in air fresheners, Odomos in mosquito repellents, Sani Fresh in surface cleaning and Odopic in the dish washing powders category.

Cement

The cement industry is witnessing a number of M&As. The extent of concentration in the industry has increased over the years. This concentration has been mainly because of the focus of the larger and the more efficient units to consolidate their operations by restructuring their business and taking over relatively weaker units. The relatively smaller and weaker units are finding it difficult to withstand the cyclical pressure of the cement industry. Some of the key benefits of M&A in this sector have been, economies of scale resulting from the larger size of operations, savings in time and cost required to set up a new unit, access to new markets, access to special features of the acquired company, etc. The relative market share of large players in the cement industry has changed significantly over the years. Consolidation of capacities has seen UltraTech, Grasim , India Cement and Gujarat Ambuja emerge as the leading players apart from ACC, which has been the market leader during all the years except in 2001.

Multinational cement companies, especially European companies, have also initiated the acquisition process in the Indian cement market. Due to impetuous growth infrastructure activities, there has been tremendous rise in cement production eventually resulted in higher revenues for the cement companies. Swiss cement major Holcim has picked up 14.8 per cent of the promoters stake in Gujarat Ambuja Cements (GACL). Holcim also acquired a majority in Ambuja Cement Eastern and a substantial stake in ACC. Ambuja Cement India holds a 34 per cent share in ACC and a 97 per cent share in Ambuja Cement Eastern. Holcim's acquisition has led to the emergence of two major groups in the Indian cement industry, the Holcim-ACC-Gujarat Ambuja Cements (combined capacity of 33.5 MT) and the Aditya Birla group through Grasim Industries and Ultratech Cement (combined capacity of 31.1 MT). Lafarge, the French cement major, had acquired the cement plants of Raymond and Tisco in the recent past, with an installed capacity of 5 MTPA. Italy based Italcementi has acquired a stake in the K.K. Birla promoted Zuari Industries' cement plant in AP, with a capacity of 3.4 MTPA. Recently, Heidelberg Cement has entered into an equal joint venture agreement with S P Lohia Group controlled Indo-Rama Cement.

Tata Group

Tata Group is one of India 's largest and most respected business conglomerates, with revenue of $ 21.9 billion (Rs 96,722.9 crore) and a market capitalisation of $ 46.9 billion in 2005-06. It comprises 93 operating companies in seven business sectors namely information systems and communications, engineering, materials, services, energy, consumer products and chemicals. Tata group is slowly and steadily extending its presence in international markets. Its overall acquisitions during seven year, 2000 to2006, have crossed the $ 2.5 billion mark (over Rs 12,000 crore). This means that during 2005-06 nearly $ 2 billion of revenues out of $ 22 billion has come from its acquisitions across Seoul to London , Sydney to Los Angeles .

Tata Group’s several acquisitions have been very large; for instance, recently Tata Coffee has spent Rs 1,015 crore for acquiring Eight O Clock Company. The acquisition brings significant strategic and operational gains for Tata Coffee as it gets an entry into the world’s largest coffee market, the US .

The two key acquisitions by Tata Steel, namely, the Singapore-based NatSteel and Thailand-based Millennium Steel, in 2004 has given the company an access to new markets – Thailand, China, Singapore, Australia, Malaysia and The Philippines – and also increased its production capacity by 3.7 million tonnes to its existing capacity of over 5 million tonnes. Tata Steel has ambitious plans to touch the 15 million tonne- mark in terms of capacity by 2010. The company has reported consolidated sales turnover of Rs 20,244 crore for 2005-06, in which contribution of standalone operations of Tata Steel had been Rs 15,139.4 crore, while subsidiary’s contribution has stood at Rs 5,105 crore. The contribution of subsidiaries to net profit was minuscule: Rs 195.6 crore versus the standalone profit of Rs 3,506 crore.

Exceptional Case: Failure of Jet Airways-Air Sahara Merger

As an aside it may be mentioned India ’s first major airline consolidation has collapsed even before it could be completed.  In January 2006, Jet Airways expressed interest to takeover Air Sahara for approximately Rs 2,300 crore ($ 500 million) with plans of an eventual merger of Air Sahara with Jet Airways. Accordingly, Jet had transferred Rs 500 crore as advance payment into an escrow account in ICICI Bank. For Jet, Air Sahara’s two lucrative assets would have been its airline infrastructure and rights to fly on international routes, especially Singapore and London . But, alas, it was not to be!

            When Jet signed the deal in January 2006, the country had no mergers and acquisitions policy specifying the terms of transfer for airport infrastructure. Jet has a fleet of 53 planes and after acquiring Air Sahara with its fleet of 27 planes, the combined capacity would have reached 80, the highest in India (Indian Airlines has 70 aircrafts).

In May 2006, the Civil Aviation Ministry announced its policy on the use of airport infrastructure in case of mergers and takeovers. According to Jet, the policy though clear on parking bays and landing slots, does not specify the status of aircraft hangars, check-in counters, cargo warehouses, passenger lounges and other such airport facilities. This along with a loss of employees and a decline in market share could be one of the reasons cited by Jet for calling off the deal. Further, Jet airways tried to lower the price of the acquisition arguing that the deal had drastically overvalued Sahara . According to Jet, Air Sahara’s rival Air Deccan, which owned more aircraft and a higher market share than Sahara , had been valued at about $ 200 million. One the other hand, Jet would have to pay $ 500 million for Sahara , whose entire fleet is leased and which flies fewer routes than Air Deccan. Jet also expressed dissatisfaction over a number of issues relating to the operation, management and finances of Air Sahara and was willing to go ahead with the deal only if the price was lowered by 20-25 per cent. Air Sahara strongly refused this offer and Jet’s attempt to prevent other bidders from acquiring Air Sahara prompted them to hike up their price. Among the other bidders Vijay Mallya (Kingfisher Airlines) has valued Air Sahara at $ 300 million.

The Jet-Sahara conflict has now moved to court. Jet Airways has filed a case in the Bombay High Court against Sahara Group for the recovery of Rs 500 crore paid to Air Sahara in January 2006 when the deal was struck. The legal battle between Jet and Air Sahara continues in court and precious management time will be wasted in the courts while the image of both airlines might get affected.

After the fallout of the deal with Sahara , Jet has discontinued the Amritsar-London flight as it had been using Air Sahara’s aircraft for the operation. Air Sahara will also be starting its independent international operations from September 2006 and has been looking at destinations like Thailand and China to start with. The airline already operates flights to Colombo and Kathmandu .

V

    A Caveat

Despite a substantial rise in the number of M&As during the past few years, the road to global M&As is not hurdle-free. It entails huge challenges ahead in the form of managing people, merging with different cultures, integrating technologies, people and infrastructure, understanding and dealing with legal complexities in foreign countries and so on. A KPMG study states that M&A deals, to some extent, are likely to be less successful if cultural issues are not attended to properly, particularly in the case of global M&As. This strategy would be successful only when people who come with the new assets are assimilated into the post-acquisition space and time. Indian companies, who wish to assess international markets, have to face the challenges of setting up new organisational structures, understanding alien cultures, assessing global talent and technology, taping the global financial market and upgrading key business process. Given the fact that acquisitions have been a new experience for medium-sized companies in India, quite a few of these acquisitions have been bogged down by post-acquisition integration and restructuring issues. Also an implication of this M&As phenomenon is that it ill not let any smaller company to survive. It can give rise to unemployment issues because the large companies are generally technology intensive whereas smaller firms are labour intensive. Finally, there is no measure if M&As will contribute to a rise in overall employment, particularly in the context of the need to absorb the less educated, unskilled labour force in the economy. For the present, M&As would obviously further intensify the already growing technology intensity of the large firms in the manufacturing sector. This would further thro up serious challenges for the economic planners to generate accelerated employment opportunities in formal sectors of the domestic economy.

_____________

*This note has been prepared by Vidya Kanitkar ; she has based it on diverse sources of information.   

Reference:

Bhoi, B. K. (2000): ‘Mergers and Acquisitions An Indian Experience’, RBI Occasional Paper, Volume 21, No 1, Summer

RBI (2006): Reserve Bank of India Annual Report 2005-06, and earlier issues

Various media sources

Highlights of  Current Economic Scene

AGRICULTURE  

The State Trading Corporation (STC) has rejected a 50,000-tonnes Russian wheat consignment, a part of the 3-lakh tonnes contracted by STC from the Geneva-based Agrico SA in July at $210-212 per tonne, owing to it containing higher percentage of "extraneous matter". The samples, first tested by the Chennai port health officials, were referred to the Central Food Technology Research Institute, Mysore , which confirmed the finding of foreign matter of 1.1 per cent against the permissible limit of 1 per cent. Meanwhile, the ministry of agriculture has made it clear that the government would not allow duty-free private wheat imports beyond December 31, 2006.

The government agencies have begun purchasing paddy in 3 states namely, Punjab , Haryana and Kerala from September 25, 2006. In most of the other major food grains producing states like Andhra Pradesh, Orissa, Uttar Pradesh, Uttranchal, Tamil Nadu, Karnataka, Madhya Pradesh, Maharashtra and Rajasthan, procurement operations would commence from October 1, 2006. Around 27 million tonnes of rice (including paddy in terms of rice) is expected to be procured by the government agencies during the current kharif marketing season 2006-07 as against 27.9 million tonnes during the previous kharif marketing season. The central government has made arrangements for opening more than 10,000 purchase centres by the government agencies all over the country.

The central government has decided to extend the 2-percentage point subsidy on farm loans of up to Rs 3 lakh to all scheduled commercial banks. The scheme announced in the Union Budget for 2006-07, initially, had included only public sector banks. However, with this extension, the private and foreign banks would also get the subvention, which earlier had to bear losses due to not being able to charge more than 7 per cent rate on farm loans like public sector banks.

The centre has asked all states to ensure that prime agriculture land would not be used for setting up special economic zones (SEZ), instead they should be set up only on wasteland or less fertile farm land. Meanwhile, government of Maharashtra has plans for farmers’ rehabilitation package in SEZs. The special package would include acquisition of land at market rate, provision of exgratia payment to farmers apart from market rate, creating social infrastructure for project affected people and providing training to farmers to tackle the problem of unemployment. The package, once approved by the state government, would be applicable to all 45 SEZs, approved by the Centre so far.

The stock of foodgrains as on September 1, 2006 has declined by 18.9 per cent to 14.5 million tonnes. While the stock of wheat in the central inventories has stood at 6.7 million tonnes, rice stock has reached at 7.8 million tonnes.

The central government has released a free sale quota (FSQ) of 16 lakh tonnes for sugar mills to offload during the coming festival season on account of possibility of a spurt in demand. The FSQ sugar of 16 lakh tonnes for October 2006 has been 14.3 per cent higher than the release of 14 lakh tonnes made in the same month of last year and any unsold quantity at the end of the month would be automatically be converted into levy sugar for the public distribution system.

The central government has approved allocation of Rs 1,003.13 crore as interest waiver for debt-stricken farmers of Andhra Pradesh, Karnataka and Kerala, which forms a part of Rs 16,978.69-crore rehabilitation package for farmers in 31 identified suicide-prone districts of Andhra Pradesh, Karnataka, Kerala and Maharashtra . Apart from this, while the loan assistance worth Rs 3,207.81 crore from the Rural Infrastructure Development Fund (RIDF) would be provided for 2,565 minor irrigation schemes, financial assistance of Rs 5,697.48 crore would be made available under the Accelerated Irrigation Benefit Programme (AIBP) for 12 major projects and another Rs 832.81 crore for medium irrigation projects. The remaining fund would be allocated to a host of schemes involving watershed development (Rs 1,860 crore), micro-irrigation (Rs 801.53 crore), seed replacement (Rs 830.10 crore) and horticultural development (Rs 452.78 crore).

As per the estimates of Spices Board of India, volume of spices exported from the country during April-August 2006 has fallen by 3 per cent to 1,40,231 tonnes compared with 1,43,880 tonnes during the corresponding period last year on account of a decline in exports of certain items such as chilli, coriander, Fenugreek, cardamom, nutmeg and mace. On the contrary, value of spices exports has risen by 16 per cent to Rs 1,155.5 crore in the same period from Rs 994.1 crore earned a year ago.

The country's first export-oriented ornamental fish park, known as Aqua Technology Park , has been planed to be set up near the Kochi International Airport . It would provide aquaculture entrepreneurs with a location to establish rearing, nurturing and procurement facilities and serve as a platform to explore international markets, to invite business delegates and to market ornamental fish in the global market.

Industry

Automobiles

The increasing trend of overseas acquisitions by Indian auto components companies may slow down this year with European and American firms quoting higher valuations. Major auto component companies including Amtek and Omax have said that their acquisition plans have been postponed in view of the higher valuations cited by western firms. Earlier it was only the larger Indian companies which were on an acquisition spree in Europe , however, now, not only the number of domestic auto component firms eyeing overseas purchases has increased but Chinese companies too have joined the race. Industry officials, however, add that the slowdown in overseas acquisitions by Indian auto components firms may only be a short-lived phenomena as the number of serious contenders are only few and valuations are bound to come down.

As per a report by PricewaterhouseCoopers, the BRIC countries, India, Brazil, Russia and China, will account for more than 40 per cent of forecast global light vehicle assembly increases and will represent 52 per cent of the industry's forecast global capacity expansion. These factors are reflected in the fact that nearly all major global automakers are pursuing a BRIC strategy in some form as they attempt to gain competitive advantage by tapping the potential of these emerging markets. Moreover, the report  says that the Indian automotive manufacturing sector is poised to grow, with the burgeoning domestic market and India being projected as the hub for small cars. All the major global vehicle manufacturers have either established or are in the process of establishing their presence in India . The industry, however, needs to work with the government to address some of the key areas such as inadequate infrastructure, high direct and indirect tax regime, inflexible labour laws, etc., to ensure that the industry is able to seize the opportunity and achieve the potential growth. As per the report, the emerging strength of the BRIC countries is common to all manufacturing sectors. What makes the automotive industry so different is the additional dynamics of consumer tastes and demands which greatly vary from market to market and the challenge is to respond to these with new strategies and products. As the auto industry becomes more global and markets more competitive, the winners will tend to be those companies that fully capitalise on the opportunities in emerging markets – from the perspective of both sales growth and cost reduction, the report comments.

Infrastructure

While infrastructure financing does not depend entirely on the growth of the bond market, it provides an excellent opportunity to drive its development, according to SEBI chief, Mr M. Damodaran, adding that while there is a roadmap in place, its exection is missing and that the policy issues on corporate debt financing should be ironed out soon. According to him, cesses could be on the high side if the bond market route is not used for infrastructure financing and in the process it should be ensured that there is no artificial segmentation of the market, he added. The SEBI chief also said that there was a need to devise new instruments and products without government guarantees. He comments that there is a growing demand for long-term money and a thriving corporate debt market with a longer tenure would help to allow them entry.

Power

GMR Energy, the holding company for the GMR Group's energy business, has signed the power purchase agreement (PPA) with GRIDCO, government of Orissa, for selling power from the 1000 MW coal-based thermal power plant at Dhenkanal District, Orissa. The company has already identified the land and is in the advanced stage of development of the project. GMR intends to wheel 75 per cent of the saleable power to power deficit states in southern India and the remaining 25 per cent at 80 per cent plant load factor shall be supplied to GRIDCO for a period of 25 years. The plant is scheduled to be commissioned by end of 2010 and the second phase by middle of 2011. The other power projects the GMR Group is into are the 200 MW LSHS fired power plant in Chennai which commenced commercial operation in 1999; the 220 MW naphtha fired power plant in Mangalore (2001), the 388.5 MW gas-fired power plant in Vemagiri (Andhra Pradesh) which has been recently completed and the 140 MW hydroelectric power plant on the river Alaknanda in Uttaranchal which is under development.

The Orissa government has signed memorandums of understanding with different companies for setting up 10 thermal power plants in the state. The 10 coal-fired thermal power plants will be set up with an investment of Rs 45,000 crore to produce 10,920 MW power. The companies that signed the MoUs at a special function organised at the State Secretariat  included Tata Power Company Ltd, Visa Power Ltd, Monnet Ispat and Energy Ltd, Lanco Group Ltd, KVK Nilachal Power Ltd, Calcutta Electricity Supply Corporation, Essar Power Ltd, Jindal Photo Ltd, Bhusan Energy Ltd and Sterlite Energy Pvt Ltd. According to the MoUs, Tata Power and Visa Power will set up a 1,000 mw coal-fired plant each in Cuttack district at a cost of Rs. 4,348 crore,and 3,698 crore  respectively. Monnet Ispat and Energy Ltd will set up a 600 mw plant in Angul district with an investment of Rs 2,852 crore, the Lanco Group will set up a 1,320 mw plant in Dhenkanal district with an investment of Rs 4,200 crore. These plants are expected to create direct employment for 10,000 persons and indirect employment for another 20,000; the state government will earn revenue of Rs 1,790 crore annually from these plants.

The government is planning to do away with the existing multi-level inspection raj applicable to safety norms for power projects. The power ministry may consider the option of deploying private agencies to carry out the inspection of power plants with a rider that there would not be any compromise on safety principle. The ministry has directed the Central Electricity Authority (CEA) to specify regulations pertaining to safety and electricity supply soon in order to avoid delays and inconvenience in the development of projects and has held discussions with state governments to find out ways to ensure compliance with safety measures to be specified by the CEA. The objective is that safety-related measures are complied with and there is a single-point responsibility so that the person responsible for non-compliance can be penalised/prosecuted. Some states have suggested that competent private parties should be accredited for discharging the functions of electrical inspectors in order to downsize the government and to curb delays and corruption. The move is significant in the present context, with state governments putting in place different mechanisms for safety-related inspections. Some states have argued that in the view of the increasing number of electrical installations, requisite technical standards should be clearly specified and the electrical inspector should carry out only random inspections

Steel

Steel manufacturers are contemplating an increase in steel prices across the board effective from October 2006. Tentatively, the average increase for flat products could be in the range of Rs 800-1,000 per tonne while for long products it could be around Rs 500 per tonne. The ministry of steel has commented that, if a situation arises based on rising demand, it might resort to moderate price hike of steel prices in the long run, though it has no intention to raise the steel prices in immediate The price increase plan is based on strong demand expected during the third quarter when demand usually spurts both from government projects and private sector. During the third quarter, demand is expected to outgrow supplies and prices may be increased more than once during the October-December period; while production of finished steel has increased by 7 per cent during April-August 2006, consumption also has increased  by 7 per cent.

Roads

The finance ministry is opposed to the demand of the National Highway Authority of India (NHAI) for autonomy in appraising road projects via public private partnership (PPP) route. The ministry has questioned the NHAI’s contention that slowing down of national highway construction is partly due to project proposals getting stuck with the PPP advisory committee (PPP-AC) with the ministry. Shifting the onus of project appraisal and final clearance to NHAI is part of the proposed recast of authority. The ministry has refuted NHAI’s allegation that the PPP-AC mechanism had led to delays by stating that the authority had sought for the approval of just one PPP project under the new model concession agreement. In the first quarter of 2006-07, roads have been the only segment in infrastructure to have recorded a negative growth and that too by a striking 37 per cent with NHAI being the largest defaulter falling short of its construction target by 55.8 per cent. Considering that NHAI has not awarded any highway projects so far this year, it seems likely that it will fall short of its targets for this fiscal as well. While NHAI officials have cited problems in land acquisitions and forest and environmental clearance as bottlenecks, the finance ministry is clearly of another view and holds the authority responsible for delay in works. Private contractors too have alleged that NHAI’s lackadaisical approach has resulted in delay in completion of work. According to official sources, the ministry would rather ensure that the general principles that underlie the PPP-mode projects for all infrastructure projects including roads are adhered to by keeping them under the ambit of its PPP appraisal committee.

Ports

India ’s maritime trade is set to witness a major boost in the coming years with strengthening of road and rail connectivity to the major ports - projects worth Rs 7,000 crore have already been sanctioned so far in 2006-07 for rail and road connectivity to ports. These include ten road projects to be completed by 2007 and another four projects expected to be sanctioned soon. Eight rail projects for port connectivity are also to be completed by 2008, while five await clearance. The ports that will gain the most from these projects are Paradip, Haldia, and Tuticorin port while ports at Kolkata, Ennore, Kandla and Cochin will also see major connectivity work. Much of the connectivity work is in the form of four-laning of national highways and doubling of railway lines. In the pipeline is also the dedicated freight corridor of the railways - the two corridors, presently under construction, will provide connectivity to Mumbai and Kolkata ports. However, new sections of the corridor, to be constructed during the 12th Five Year Plan aim to connect ports on the eastern and western coast, while another is being planned exclusively for the eastern ports.

Inflation

The annual point-to-point inflation rate based on wholesale price index (WPI) has gone down to 4.56 per cent for the week ended September 16, 2006 from 4.61 per cent during the previous week. The inflation rate was lower at 4.17 per cent in the corresponding week last year.

The WPI in the week under review has gone down marginally by 0.1 per cent to 206.3 from the previous weeks’ level of 206.6 (Base: 1993-94=100). The index of ‘primary articles’ group (weight 22.02 per cent) has declined by 0.4 per cent to 211.1 from its previous week’s level of 212, mainly due to a decline in the price index of ‘food articles and non-food articles by 0.6 per cent and 0.1 per cent, respectively. The index of ‘food articles’ has gone down to 214.2 from 215.5, mainly due to the lower prices of mutton, bajra, fruits and vegetables, urad, jowar, maize and condiments and spices. The index of ‘fuel, power, light and lubricants’ group (weight 14.23 per cent) has declined by 0.5 per cent to 324.9 from the previous weeks’ level of 326.6, mainly due to the lower pieces of naphtha and furnace oil. The index of ‘manufactured products’ group constituting the maximum of 63.7 per cent of total weight, has gone up a tad by 0.1 per cent to 178.1 from it’s previous week’s level of 178.0, mainly due to the higher prices of ‘non-metallic mineral products’, base metals and ‘transport equipment and parts’.

The latest final index of WPI for the week ended July 22, 2006 has been revised upwards; as a result both, the absolute index and the implied inflation rate stood at 204.2 and 4.72 per cent as against their provisional levels of 204.1 and 4.67 per cent, respectively.

Public Finance

The empowered committee has decided to postpone the phasing out of Central Sales Tax until April 1, 2007 and since the plan has been delayed by six months, it has also decided that the rate would now be reduced from 4 per cent to 2 per cent directly so that the reduction plan remains unchanged. Earlier the committee had intended to reduce the CST rate from 4 per cent to 3 per cent from October 1, 2006 and further to 2 per cent from April 1, 2007. The CST phase-out would, however, be contingent on the states and the finance ministry has agreed on the compensation package for losses on account of the reduction in CST rates. The states estimated that the revenue from CST during 2006-07 would be around Rs 20,000 crore. States and the finance ministry have so far been unable to reach an agreement on the nature and quantum of compensation for phasing out of the CST. 

Banking

Development Credit Bank promoter, Aga Khan Fund for Economic Development (AKFED) has sold nearly 1 per cent stake in the bank to HDFC and two other investors for Rs 10 per share, ahead of its IPO. The bank has kept a price band of Rs 22 – 26 for its maiden float.

The RBI wants banks to get directly engaged in mico-finance lending activities to bring down the cost of funds for the small borrowers. By lending through existing branch outlets, banks will be able to make fuller utilization of their existing capacity and their overhead costs would get used up without increasing costs. Transaction costs for smaller loans are higher as overhead costs are higher and as a result the interest rates charged are very high.

Infrastructure Development Finance Company (IDFC) has acquired 33 per cent stake in SSKI Ltd., a leading corporate finance and institutional securities company, for Rs 100 crore. Through this investment, IDFC and SSKI propose to work together by pooling their relationships and expertise to provide investment banking and capital market solutions to clients.

Financial Markets

Capital Markets

Primary Market

Listing day blues continued with two of the three initial public offers (IPOs) that were listed during the week closing over 20 per cent below their offer prices. Deep Industries closed at Rs 27.90, down 23 per cent from its issue price of Rs 36, and KEW Industries closed at Rs 23.60, down 21 per cent from its offer price of Rs 30. 

JHS SVENDGAARAD Laboratories Ltd. IPO share price Rs. 49 to 58 per equity share open issue September 27, 2006 to October 04, 2006.

Development Credit Bank is to tap the market between September 29 and October 6 in a price band of Rs 22-26 per share.

Secondary Market

Short covering in derivatives ahead of the expiry of September 2006 derivative-contracts, expectation of strong second quarter results, cheaper oil, and sustained FII-buying took the market higher.

During the BSE Sensex has risen 217.64 points to end at 12,454.42 and the index is now just about 200 points away from a lifetime high, 12,671, struck in intra-day trade on 11 May 2006. The S&P CNX Nifty has risen 44.35 points to settle at 3,588.40 in the week ended 29 September.

Bank shares have been in the limelight as they are expected to come out with strong results given the easing of yield rates and hence as they will not be required to make provision for a depreciation in their bond portfolios as against in that in the past few quarters, when bond prices were continuously falling.

Market regulator SEBI has extended the deadline to provide a Permanent Account Number (PAN) by demat account holders, to 31 December 2006 instead of 30 September 2006.

Sebi also has reduced the turnover fees for brokerages with effect from 1 October 2006. Under the new fee structure, brokerages are required to pay Rs 20 per crore worth transactions (0.0002 per cent) in the securities market, down from the earlier Rs 1,000 per Rs 1 crore worth of transactions. In the futures & options segment, the fee has been marginally increased to Rs 20 per crore (0.0002 per cent) from the existing Rs 10 per crore.

The market sentiments have remained buoyant following the robust GDP growth rates. As per the latest economic data, GDP grew 8.9 per cent in the April-June 2006 quarter from a year earlier, boosted by manufacturing and services output.

The RBI has equated International Finance Corporation’s (IFC) with foreign financial institutions, thus blocking the move of its acquisition of 7.77 per cent stake in the Kerala-based Federal Bank.

Derivatives 

NIFTY futures have been trading at a very narrow discount to the spot index or even at a premium to the spot on a closing basis ever since the introduction of the four stocks - L&T , SAIL, Zee Telefilms and Reliance Communications on the futures and options (F&O ) segment. This has been because the inclusion of these stocks has resulted in all the Nifty's 50 shares getting traded in futures. The introduction of the four stocks has removed the anomaly and made the system more efficient. The combined weight age of these stocks amounts to almost 7-8 per cent  on the Nifty. Before the inclusion of these, Nifty futures were trading at a continuous discount to the spot index over the last few years. Theoretically, the discounted value of the futures must correspond closely to the spot price. If there is a difference between the futures value and the spot price, there is a mispricing in the futures market. This mispricing is the potential source of arbitrage. The inclusion has made arbitrage easier, as an investor can easily create a basket of stocks and use index futures accordingly.

In the derivatives segment, the market-wide rollover of September contracts to October was 77 per cent and rollover in Nifty futures was over 70 per cent.

Government Securities Market

Primary Market

The Reserve Bank of India (RBI) has announced government borrowing programme of Rs 63,000 crore through issuance of dated government securities for the second half of 2006-07. The borrowing plan of the government by way of marketable government bonds has been quite in line with the expectations of the debt market participants. As per the indicative calendar for issue of government securities, released by RBI in consultation with the government, the central bank plans to sell government securities worth Rs 9,000 crore in the month of November, while in the month of December, it plans to auction Rs 14,000 crore worth government bonds. The government plans to borrow Rs 9,000 crore and Rs 8,000 crore through issue of government securities in February and March 2007. The government has so far borrowed Rs 89,000 crore through government securities out of a total budgeted borrowing plan for the year of Rs 1,53,000 crore.

In the address on ‘Changing Paradigms in Risk Management’, Smt. Shyamala Gopinath, Deputy Governor, RBI has highlighted the features of financial risk management, especially with respect to the Indian context. She has said that the RBI plans to bring all derivative transactions of banks on their balance sheets. “Currently the ‘when issued’ trading is limited to re-issuances only.

The cut-off yield in 91-day T-Bill auction was steady at 6.52 per cent during the week. The cut-off yield in 364-day T-Bill auction moved lower to 6.90 per cent as against the previous cut-off yield of 6.93 per cent.

Secondary Market

The weighted average YTM of  7.59 per cent 2016 bond was 7.62 per cent on Sept 29, 2006 as compared to 7.66 per cent on Sept 22, 2006. The 1-10 year YTM spreads decreased by 6 bps to 73 bps. The market sentiments have been buoyant following the statements by  Finance Minister P Chidambaram Sunday said the Reserve Bank of India may not need to raise interest rates further to curb inflationary expectation. Chidambaram also said the government’s market borrowing during October-March, the second half of 2006-07, would be in line with budget estimates.

Bond Market

Allahabad Bank has tapped the market to moblise Rs 600 crore (Rs 300 crore as green shoe option) by offering 8.85 per cent for 10 years.

Foreign Exchange Market

According to the RBI’s ‘Sources of Accretion to Foreign Exchange Reserves’, the major sources of accretion to foreign exchange reserves during the first quarter 2006-07 have been External Commercial Borrowing (ECB), banking capital and foreign investment. The accretion to the foreign exchange reserves was of the order of US $ 6.4 billion on a BoP basis (excluding valuation effects) during April-June 2006. Valuation gain, reflecting the appreciation of major currencies against the US dollar, accounted for a rise of US $ 4.9 billion in total reserves during the first quarter 2006-07 as against a valuation loss of US $ 4.3 billion during corresponding period previous year. Taking into account the valuation gain of US $ 4.9 billion, foreign exchange reserves recorded an increase of US $ 11.3 billion during April-June 2006-07 (a decrease of US $ 3.1 billion during April-June 2005-06).

The six-month forward premia closed at 1.29 per cent (annualized) on 29 September, 2006 vis-à-vis 1.21 per cent on 22 September, 2006.

Commodities Futures derivatives

Energy Futures including crude oil and natural gas on Multi Commodity Exhange (MCX) continued their downward rally on Monday. The near month contract for crude price fell by Rs 38 per barrel to Rs 2,764 where as natural gas weakened by Rs 13 per mmBtu closing at Rs 362. November crude oil contract closed at Rs 2,825 a barrel, up Rs 41 from its previous close. Similarly, December contract slipped by Rs 56 a barrel at Rs 2,870 on Monday. On natural gas front, the November and December contracts saw a slump of Rs 10 and Rs 9 per mmBtu respectively. Though analysts say that speculation among traders is playing an important role in softening of prices, high level inventories in the US is the main factor bringing down prices. “Falling prices of crude can be attributed to the rising inventories in US. At the same time, the decline is also getting support from the fact that confrontation over Iran has not escalated to the level it was earlier expected,” said Nagarajan Narasimhan, head-research, Crisil Research.  He added that the storms in America (which affects the oil production) are also expected to be less damaging this year compared with last year’s storms, which is further introducing the bearish impact in the crude prices. Last week had seen a fall of Rs 210, Rs 206 and Rs 170 per barrel of crude oil for October, November and December contracts respectively. October contract for crude at closed at Rs 2,802 a barrel last week. October contract for natural gas on MCX had closed at Rs 275, a decline of Rs 9 per mmBtu last week.

Energy complex kept the bears riding over the bulls. Metals tumbled from the recent highs with crude taking a grip over the bullish sentiment that was building around metals.Crude fell to a six-month low of $59.5 a barrel at the Nymex electronic trading and was trading below 1per cent from previous close. The fall was pressured from the easing Iran talks and on BP’s plan to restart Prudhoe Bay . With news that Persian Gulf tanker rates may hold near 4-week high due to limited vessel availability, crude oil gained support after dipping to a fresh low.In the Comex, gold was down to $585 an ounce from high of $590 after the US dollar strengthened against the euro. MCX gold was trading near Rs 870 a gram and silver at Rs 17.16 a gram. With news of European central banks may stay away from selling the balance gold as per the Washington accord and the start of Indian festival season, the prices are likely to be supported at every fall. Pulses experienced a mixed bag of fortune. Decline was the common factor in case of urad trade. Urad desi November contract closed at Rs 3,477 nearly down by 2.85 per cent to Rs 3,477 on increased arrivals in the major urad producing areas of Madhya Pradesh and Uttar Pradesh. Lack of buying from the millers and stockists dragged the spot prices down. Selling pressure of 1,900 tonne of imported urad by Nafed also considerably weakened the market sentiments. Chana, on the other hand, gained sharply on improved buying support. The most active November contract gained by 1.93 per cent to Rs 3,255. The entire spice complex was in the grip of bears.

After allegations that wide-scale speculation on commodity futures exchanges had caused prices of essential commodities to rise, the commodity derivatives regulator announced a massive cut in position limits of almost all commodities traded on exchanges from September 1.  Effective from September 1, FMC also doubled additional margins on wheat to 20 per cent and upped special margin on chana to 15 per cent and 10 per cent on long and short positions, respectively. As expected, these measures substantially reduced turnover in wheat and pulses, among others, on NCDEX. The total turnover on NCDEX fell to Rs 80,900 crore in September 1-20 from Rs 1,12,400 crore in April, and Rs 1,50,000 crore in May, data showed. 

MCX has now emerged as the second largest Natural Gas Exchange globally, next to NYMEX. The exchange launched its Natural Gas futures for trading on July 10, 2006. Within two months of its launch, the traded lots have reached 5,46,150, which is 25 per cent of NYMEX volume (23, 23,000). The number of participants has also increased to 514 per day in August 2006 from 250 per day in July 2006. Daily average turnover of natural gas futures at MCX platform has increased significantly to Rs 436.91 crores in August 2006 from Rs 103.30 crores in July 2006.

Corporate Sector

The Business Standard Research Bureau has recently carried out a capex (capital expenditure) survey of 1,425 firms. The aggregated gross fixed assets of the 1,425 firms have risen by 11.7 per cent at Rs 7.7 lakh crore from 2004-05. The capital spent on work in progress has grown by 32 per cent to Rs 1.2 lakh crore. During 2005-06, manufacturing and services sectors spending have increased by 29 per cent at Rs 1.1 lakh crore than the Rs 84,685 crore spent on expansion in 2004-05.

Tata Power Company has signed a memorandum of understanding (MoU) with the Orissa government for a 100-mega watt (MW) coal based power project with captive coal mines at a cost of Rs 4,300 crore at Naraj Marthapur in Cuttack . Another thousand units will be set up in the second phase of the project tot take up the capacity to 2000 MW with a combined investment of 9,000 crore.

Mahindra & Mahindra has acquired 67.9 per cent shares in German forging company Jeco Holdings at a cost of Rs 830 crore.

Sonata Software a Bangalore based software services firm, has acquired 50.1 per cent shares in TUI Infotech, a German software firm, for Rs 106 crore in an all cash deal.

Ranbaxy Laboratories has entered into a licensing agreement with US based Gilead Sciences Incorporate for manufacturing and marketing of active pharmaceutical ingredient (API) and formulations containing anti HIV drug tenofovir disoproxil fumarate (TDF).

Telecom

Bharat Sanchar Nigam Ltd (BSNL) will exempt transit charges on the termination of calls to its cellular customers from private fixed and mobile operators that have signed with it interconnection agreements. However, for operators that have not signed interconnect agreements, the existing method of routing calls through its public switch telephone network (PSTN) will continue, and BSNL will levy transit charges of 19 paise a minute.

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

LIST OF WEEKLY THEMES

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