Current Economic Statistics and Review For the Week 
Ended October 28, 2006 (43^rd Weekly Report of 2006)

Theme of the week:

Food Management and Wheat Imports*

Wheat, the second largest grain crop consumed (after rice), is integral to the food security of the country. India has been the second largest wheat producer, after China , with production increasing consistently, especially after the success of green revolution. Wheat has made an enormous contribution to the growth in foodgrain production in the country (Table 1); it constitutes almost 33 per cent of the total foodgrains.

Wheat production has posted a four-fold rise, from a little over 6 million tonnes to 24 million tonnes between 1950-51 and 1970-71, and has increased three times again to 76 million tonnes by 1999-00. Over the period, wheat has turned out to be a major food staple besides rice and has strengthened the dietary basis by being the basic ingredient in a large variety of foods that include many types of breads, cakes, noodles, breakfast foods, biscuits, cookies, and confectionary items. Demand for wheat and wheat products has been gaining momentum with increasing population, rising per capita incomes and changing dietary habits as a result of rapid urbanisation. For instance, as per the data in the 59^th Round (January- December 2003) of NSSO on household consumer expenditure, the per capita monthly consumption of wheat and wheat products, in 2003-04, has stood at 4.59 kg per capita in urban areas and that of 4.22 kgs in rural areas. Wheat has accounted for 46.4 per cent of total cereal consumption in urban areas and only 34.2 per cent of the same in rural areas in the same period.

However, during last 5-6 years wheat production has been stagnating with falling growth rate of yield. Wheat productivity has declined from 2,778 kg per hectare in 1999-2000 to 2,718 kg per hectare in 2004-05, posting a fall of 2.2 per cent or CAGR of – (0.46) per cent as against a CAGR of 1.82 per cent recorded during 1990-2000. These diminishing growth rates of output and yield of wheat, given its pivotal position pertaining to food security of the country, have become a serious cause of concern, especially in the backdrop of country witnessing a rapid decline of wheat stocks in the central inventories since 2002 and increasing active participation of private players in wheat trade.

Wheat Supply Management

Consequent to the severe foodgrain crisis of the mid-1960s, as well as the earlier experiences, the government of India developed a system of institutions with Foodgrains Policy Committee (1966) postulating three objectives of food policy: to achieve self-reliance in production, to ensure equitable distribution, and to bring about price stability in the context of both production and distribution. The Committee went on to suggest that the latter two objectives could be achieved by planned management of food supplies involving such measures as procurement, control of inter-State movement of foodgrains, a system of public distribution (PDS) and the building up of buffer stocks.

Procurement operation serves the objective of providing price and income security to the farmers by ensuring the purchase of their produce at minimum support price (MSP), which induces them to sustain production levels besides meeting the government's objective of PDS as an instrument to protect the vulnerable sections against price volatility. MSP has become the key component in directing the production decisions of farmers and helping government to procure increasing quantities of foodgrain from the farmers, particularly, in case of wheat (Annexure 1). Direct relationship has been observed between MSP and Production (Chart A) and MSP and Procurement (Chart B) of wheat, especially during 1990s, although the same cannot be said for the period 2000-01 onwards.  In both the charts, MSP has been plotted on the Y-axis on the left side, while Production and Procurement of wheat have been plotted on the Y-axis on the right hand side, in chart A and chart B, respectively.

During the post reform period till mid 1990s, the country’s food management policy evolved against the scarcity and import dependence. Hence, with the view to increase production and procurement, the government adopted a measure of announcing higher MSP to gear up the procurement of wheat. For instance, the MSP recorded 35.7 per cent increase from Rs 280 per quintal in 1991-92 to Rs 380 per quintal in 1995-96. This period saw an upsurge in production as well as procurement of wheat (Chart A and Chart B). However, during rabi season 1995-96 wheat production suffered on account of adverse weather conditions. Wheat prices rose to unprecedented heights by November 1996, prompting the government to release larger quantities from central pool besides taking recourse to imports. In the following year the MSP was fixed at all time high of Rs 475 per quintal (including a drought relief payment) that helped in augmenting production and procurement once again.

The average annual rise in wheat MSP had been 10.8 per cent in the period 1992-93 to 1999-2000 as against that of 6.2 per cent during 1980-81 to 1991-92. Wheat growers found it lucrative to sell their produce to government agencies at higher MSPs rather than in the open market. Consequently wheat procurement during post reform period (1992-93 to 1999-2000) grew at an annual average rate of 13.5 per cent as compared to just 2 per cent during 1980-81 to 1991-92.  In fact, wheat procurement was highest in 2001-02 touching 20.6 million tonnes, after which it has been diminishing continuously and has reached its lowest ever level of 9.2 million tonnes in rabi marketing season 2006-07 during the post reform period. Chart C has highlighted the trends in wheat procurement, offtake and stocks (stocks are as at end-March every year) during the post reform period.

The rise in the procurement was accompanied by rising stocks of wheat in the central pool, with the stocks remaining above their stipulated buffer norms during the post reform period. Wheat stocks posted a robust annual average growth of 39.8 per cent during 1992-93 to 1999-2000 as compared to that of 5 per cent during 1980-81 to 1991-92, reaching their peak at 26 million tonnes in 2001-02. The rise in stocks did not result from increase in production rather it came at the cost of fall in the offtake (Annexure 2). The offtake improved marginally at an annual average growth rate of 2.9 per cent during 1992-93 to 1999-2000 as against that of 5.2 per cent during 1980-81 to 1991-92. In 1991-92, the offtake of wheat was 86 per cent of the quantity allocated for PDF, which slid down to 32 per cent in 2000-01. Offtake declined quite dramatically particularly after 1998-99 with the introduction of Targeted Public Distribution System (TPDS). TPDS was introduced in June 1997, which replaced the erstwhile PDS. TPDS adopted a new two tier subsidised prising structure for foodgrain delivery for households below poverty line (BPL) at a much lower price (hence highly subsidised) and above poverty line (APL) at a price much higher and closer to the economic cost incurred by Food Corporation of India (FCI). This bifurcation resulted in narrowing differential between issue price of wheat supplied under TPDS and its open market prices especially for APL families causing APL families virtually to move out of the PDS in turn leading to lowering of offtake by this segment.

Another reason for piling up of wheat stocks, besides poor offtake, has been the situation of crowding out of private players from the market as the farmers sold their produce to government agencies due to attractive MSPs, causing FCI to procure more wheat than required for food security. However, mounting up of the stocks caused the central inventories to incur higher carrying costs of buffer stocks (comprising freight, storage, interest charges etc.). Escalating carrying costs combined with the disposal of the foodgrains at subsidised rates (for BPL families and for Antyodaya Yojana) resulted in piling up of food subsidy. The food subsidy increased from Rs 2,850 crore in 1991-92 to Rs 12,010 crore in 2000-01 (Economic Survey 2001-02).

In an effort to encourage offtake and liquidate surplus stocks, various measures have been adopted during 2001-02 which included - release of foodgrains from the FCI at consessional rates for exports, open market sale at prices much below economic cost, lowering the issue prices under TPDS for APL families, increasing monthly allocation for APL, BPL and Antyodaya families (in order to make TPDS more focused and targeted towards poor population, Antyodaya Anna Yojana was launched on Dec 25, 2000) to 35 kg per month per family and utilisation of foodgrains under various welfare schemes. During the year 2002-03, drought faced by 17 major states lead to disposal of surplus stocks in providing relief to drought-affected states.

All these measures helped in gradual improvement of offtake on one hand and subsequent reduction in excessive stocks on the other. Further, the government also adopted the policy of restraint in the announcement of the MSPs of wheat as part of its strategy to remove market distortions, and to restore the role of private trade in the grain market, thereby easing the pressure of procurement on the FCI. This is quite evident from the minor annual average growth of 1.1 per cent reported in wheat MSP during 2002-03 (Rs 620 per quintal) to 2004-05 (Rs 650 per quintal) period. As expected, this period saw a large number of multinational companies and private players entering into the market in a big way and procuring wheat from the market in excess of their requirement at a price over and above the MSP fixed by the government. As noted in the report on ‘Rabi Crop Profile’ by ministry of agriculture, in Punjab and Haryana, the private initiatives by corporate groups to buy directly from farmers had been weak due to regulations on licensing, payment of tax etc. The removal of restrictions in some other states has seen the entry of corporate groups and large trading companies like ITC and Cargill entering business of the purchase and sale of wheat and wheat flour. In Uttar Pradesh, the corporate bodies have been allowed to directly purchase from farmers at any price above MSP.

 The other simultaneous developments like liberal policy of the government of free trade and movement of agriculture produce (which includes removal of all controls on foodgrains namely licensing, stock limits), policy of allowing any dealer to freely buy stock, sell, transport, distribute, dispose, acquire, use or consume any quantity of wheat and commencement of wheat trading on commodity exchanges facilitated direct and easy access of private players to the farmers produce, in turn adversely affecting procurement operations of  government agencies. The Standing Committee on Food, Consumer Affairs and Public Distribution (2005-06), also, has criticized that the reforms in agriculture sector has not yielded the desired results of fair, efficient operation of PDS and undue advantages have been taken by private traders and multinational companies and it has also been apprehensive that the profit orientation of these private players might result in artificial increase in wheat prices in the domestic market through unfair practices like hoarding and black-marketing.

Active role of private trade coupled with diminishing wheat output have adversely affected wheat procurement, by government agencies, from 2003-04 onwards, thereby hampering the offtake and squeezing the size of stocks in the central pool below the required buffer norms. For instance, wheat stocks were 5.8 million tonnes as on January 18, 2005, lower than the required buffer norm of 8.20 million tonnes as on January 01, 2006. Wheat stock further came down to only 46 lakh tonnes as on February 08, 2006.

Given the situation of diminishing wheat stocks and sky rocketing wheat prices (especially in southern states), the central government announced duty-free imports of 5 lakh tonnes of wheat for open market sales in the southern part of the country towards the beginning of the wheat marketing season 2006-07, in early February 2006. Farmers protested this move on the back of apprehensions that these imports on their arrival could restrain the expected returns of the new harvest wheat crop. Disregarding their opposition, the central government authorised State Trading Corporation (STC) to continue its wheat import plans.

The wheat stock with the central pool consistently remained below the buffer requirement during wheat marketing season 2006-07 as a result of continuous release of wheat under the open market scheme, poor procurement of new wheat crop by government agencies due to market price ruling above minimum support price (MSP) and higher purchase by wheat based industries facilitated by amendments in the Agriculture Produce Market Committee (APMC) Act. The government did announce a bonus of Rs 50 per quintal to wheat growers over and above the MSP of Rs 650 per quintal, but the move came too late to serve its purpose of gearing up the procurement. Continuous depletion of stocks and projected downfall in wheat production hardened wheat prices in the domestic market necessitating additional imports.

After issuing 8 tenders (Annexure 3), the total quantum of wheat imports for the public distribution system, so far, stands at 55 lakh tonnes. Additionally, backed by nil customs duty for wheat imported on private account (valid till December 2006), imports of wheat by private players, as per the official records, has been around 15 lakh tonnes and far larger than this according to traders.

Although with subsequent arrivals of the imported wheat, supplies might improve to some extent, it, however, seems unlikely that they would help relax wheat prices in the domestic market substantially. The landed price of wheat contracted by STC, between the first and last tender, has gone up by over $ 30 per tonne. The increasing transport costs due to rising crude prices as well as higher prices of wheat in the international market on account of a projected fall in global wheat output have been fuelling import costs.

The situation appears to worsen when one discounts for quality differences between Australian white wheat (first tender) and the less-preferred Russian/Black Sea-origin grain (last tender) prepared using this wheat. Flour mills perceive problems of marketing these wheat products made from this low-quality imported wheat; for instance, red coloured wheat of Canada and US origin would result in a reddish wheat bran and flour, which is likely to face consumer resistance. More seriously, the dilution of quarantine norms to the extent of bypassing the Plant Quarantine (Regulation of Import into India) Order and allowing imports with pest content might have an adverse impact by contaminating local varieties, entry of different types of pests and diseases affecting other crops and thus harming consumers’ interest.

* This note is prepared by Pallavi Oak.

References

• Agricultural Statistics At A Glance 2005, Directorate of Economics and Statistics, Ministry of Agriculture

• Economic Survey, Government of India , Ministry of Finance, Various Issues

• Gandhi V. et al (2004), ‘ India ’s Wheat Economy: Will Demand be a Constraint or Supply?’, Economic Political Weekly, Vol.39 No. 43.

• Reports of Commission on Agricultural Costs and Prices on Price Policy of Rabi Crops for 2005-06 Season, Ministry of Agriculture, Government of India, www.dacnet.nic.in

• Demands for Grants (2006-07), Standing Committee On Food, Consumer Affairs and Public Distribution (2005-06), 12^th Report, Ministry Of Consumer Affairs, Food And Public Distribution (Department of Food And Public Distribution), www.fcamin.nic.in

• Various Media Sources

Highlights of  Current Economic Scene

AGRICULTURE  

According to estimates of Food and Agriculture Organisation (FAO), world trade in wheat would increase by 7 lakh tonne at 111 million tonne for 2006-07 (July-June) compared to previous season. Imports by several leading wheat importing countries are forecast to remain unchanged or decline in 2006-07. Wheat imports by India are expected to touch at least 6 million tonnes due to the shortfall in wheat stocks in central pool and rising prices in the domestic market. In the meanwhile, out of the contracted import quantity of 5.5 million tonnes, 2 million tonnes of the wheat had arrived at ports since February 2006 when the country began importing after a six-year gap. Apart from this 5,52,152 tonnes of wheat is scheduled to arrive by November 15, 2006.

The production of white sugar in the country is expected to touch 23.9 million tonnes in the sugar year (October – September) 2006-07, posting an increase of 24 per cent from 19.3 million tonnes produced in the season ended on September 30, 2006. Production in the just-ended sugar season (October –September) 2005-06 has been higher than the government’s estimate of 19.1 million tonnes. Increase in the production would pave the way for lifting the ban on sugar exports imposed by the government on June 22 to ensure enough supplies and keep prices in check.

The government agencies have procured an all-time-high 280 lakh tonnes of rice in the kharif marketing season (KMS) October- September 2005-06, 34 lakh tonnes higher than 246 lakh tonnes procured during the previous season. The government managed to procure 50 lakh tonne more rice than its initial estimate of 230 lakh tonne for KMS 2005-06. Punjab has the largest share in the total procurement with its contribution of 89 lakh tonnes followed by Andhra Pradesh with 49 lakh tonnes. Progressive procurement of rice in the current KMS (2006-07) has touched 45 lakh tonnes as on October 16, 2006. This is 12 lakh tonnes more than the procurement in the corresponding period last year.

As per the data reiterated by Solvent Extractors’ Association, imports of edible oil in the 11 months of the current oil year (November-October) 2005 -2006 has declined by 18 per cent to 3.78 million tonnes. Non-edible oil imports, however, have registered a robust growth of 63 per cent to 6,05,611 tonnes during the same period. While the imports of refined soyoil have fallen by around 18 per cent to 20,457 tonnes during November-September 2005-06 from 25,003 tonnes a year ago, that of crude soyoil imports have also been lower at 1.48 million tonnes during the same period from 1.81 million tonnes a year ago.

According to the Spices Board of India, exports of spices during the first half of the fiscal year 2006-07 has increased in terms of value but has declined in volume. Exports has stood at 1,65,198 tonnes valued at Rs 1,405.34 crore against 1,71,616 tonnes worth Rs 1,208.64 crore in the corresponding previous period. Increase in unit value of value-added products and certain spices contributed to the rise in export value realisation. On the other hand a sharp fall in products such as chilli and coriander has led to the drop in total quantity exported.

Inflation

The annual point-to-point inflation rate based on wholesale price index (WPI) remained at the same level as last week at 5.16 per cent for the week ended October 07,2006. However, the inflation rate was lower at 4.88 per cent in the corresponding week last year.

The WPI in the week under review has gone up to 207.9 from the previous weeks’ level of 207.8 (Base: 1993-94=100). The index of ‘primary articles’ group (weight 22.02 per cent) declined by 0.2 percent  to 211.9 from its previous week’s level of 212.4, mainly due to a fall in prices of ‘food article like fish, mutton, bajra, ragi and maize. The index of ‘fuel, power, light and lubricants’ group (weight 14.23 per cent) has gone up by 0.2 per cent to 329.5 from its previous weeks’ level of 328.9. The index of ‘manufactured products’ group has risen from 179.2 to 179.4 during the week under review thereby registering a growth rate of 0.1 per cent., Though, food products, nitrogen, pig iron  registered decline in their prices during the week; the prices of foreign spirit, tyre cord bricks, cement, ms bars, lead ingots, zinc, switch gears, automobile spare parts recorded some increases in their prices.

 The latest final index of WPI for the week ended August 12, 2006 has been revised upwards; as a result both, the absolute index and the implied inflation rate stood at 205.0 and 5.08 per cent as against their provisional levels of 204.7 and 4.92 per cent, respectively.

Banking

The Reserve Bank of India ’s (RBI) norms for lending to the real estate sector are getting stricter. After blocking funding for purchase of land, the central bank has further tightened its measures for checking flow of funds from banks to the real estate sector. It has asked banks to ensure that credit disbursed is used only for “productive construction activity.” The RBI has been highly reactive to banks’ real estate exposures for over a year now as property prices started rising sharply and have now nearly peaked. Banks have been asked to draw up extensive prudential norms for exposure to real estate sector. In addition, RBI has raised the risk weights for capital allocation to 150 basis points on banks’ exposure to commercial real estate and home loans above Rs 20 lakh.

The RBI has indicated that it would consider waiving its ban on branch expansion by banks fined in the IPO allotment scam if they seek to extend their reach in rural areas.

Financial Markets

Capital Markets

Primary Market

During the week, among the three issues listed on stock exchanges, two have been ruling below the issue price and only one has been ruling above the issue price.

Secondary Market

The benchmark Sensex of the Bombay Stock Exchange (BSE) approached the psychological 13,000-mark on Tuesday as it touched an intra-day high of 12,994.45. However, after three days of consecutive gains, where it moved up by 530 points, the Sensex ended the day with a marginal loss of 44.35 points at 12,883.83. However, for the week, the benchmark BSE Sensex lost 27 points to 12,709.40, on profit-booking, after a solid spurt in the previous few sessions on the back of impressive quarterly results from IT companies. Among the sectoral indices of BSE, the auto index has registered a loss of 3.41 per cent as the some of the auto majors have not shown good performance during the quarter.

The Securities and Exchange Board of India (Sebi) has tightened the investment guidelines with respect to venture capital funds (VCFs) and foreign venture capital investors (FVCIs) registered with it. The regulator has decided to impose a lock-in period of 12 months on all pre-initial public offer (IPO) investments made by VCFs/FVCIs.

Prior to this amendment in the DIP guidelines, shares held by VCFs and FVCIs were exempted from the lock-in period. The amendment regarding lock-in will be applicable to all offer documents, which are yet to be registered with the Registrar of Companies (RoC). Sebi said, the move is in order to make the Indian primary market more efficient and transparent. As per the new policy, shares held by Sebi-registered VCFs or FVCIs for a period of at least one year as on the date of filing the draft prospectus with Sebi will attract a lock-in of one year. Also, shares issued to Sebi registered VCFs/FVCIs upon conversion of convertible instruments will also attract a lock-in of one year. That is if, during the period of one year prior to the date of filing draft prospectus with Sebi, if any convertible instrument is converted into equity, than these shares will also attract a lock-in, provided that the period of holding such convertible instruments as fully paid up, together with the period of holding shares resulting from conversion, is at least one year as on the date of filing the draft prospectus with Sebi. The amendment gains significance, as there is close to 80 VCFs registered with Sebi while there are more than 51 Sebi registered FVCIs. The players in the industry said the move by the regulator might be to discourage the entry of fly-by-night operators who want to take advantage of the booming Indian corporate sector. Also, some of the players were of the opinion that even if this provision of lock-in may prove to be a dampener for some, investments in deserving Indian companies will continue as private equity players who are qualified institutional investors.

Derivatives

As usual, open interest has grown overall in both the October and November futures series due to rollover activities. The nifty is trading at 3676 in the spot market while October futures at 3687.35 and November series at 3689. This is highly unusual that the far month contract have been ruling at premium to near month.

Government Securities Market

Primary Market

RBI conducted the auction of State Development Loan (SDL), 2016 for two states for an aggregate amount of Rs.201.33 crore. The cut-off yield of SDL 2016 for Arunachal Pradesh and Kerala was 8.04% and 7.99% respectively.

The Government of India has issued the first tranche of '8.15 per cent Government of India FCI Special Bonds, 2022' for Rs. 5,000 crore (nominal) to Food Corporation of India (FCI). The Special Bonds will be transferable and eligible for market ready forward transactions (Repo). The bonds, however, will not be an eligible underlying security for ready forward transactions (Repo/Reverse Repo) with the Reserve Bank of India .

The Governments of India has issued the first tranche of '8.13 per cent Oil Marketing Companies

Government of India Special Bonds, 2021' for Rs. 5,000 crore (nominal) to three Oil Marketing Companies as compensation. The Special Bonds is being issued at par to IOCL (including IBP) for Rs. 2,838 crore, BPCL for Rs. 1,135 crore and HPCL for Rs.1,027 crore. The Special Bonds will be transferable and eligible for market ready forward transactions (Repo). The bonds, however, will not be an eligible underlying security for ready forward transactions (Repo/Reverse Repo) with the Reserve Bank of India .

Secondary Market

Call rates during the period ranged between 6.50 per cent and 7.00 per cent, while repo rates ranged between 5.77 per cent and 6.90 per cent and the CBLO rates ranged between 6.28 per cent and 6.81 per cent. The daily average outstanding amounts in the LAF (reverse repo) operations conducted during the period were Rs.1921 crore vis-à-vis Rs.18,179 crore and Rs. 15472 crore for CBLO and Call market respectively. During the week, the RBI received subscription of Rs. 1000 crore and Rs. 1585 crore for LAF (repo) operations on October 19 and October 20 respectively.

The weighted average YTM of G.S 2016 7.59 per cent bond was 7.6779 per cent on Oct 20, 2006 as compared to 7.6193 per cent on Oct 13, 2006. The 1-10 year YTM spreads increased by 4 bps to 75bps.

Bond Market

Standard & Poor's and Crisil-Icra have given completely opposite ratings for the Tata Power Company (TPC). S&P revised TPC’s rating outlook to negative from stable. It has affirmed its BB+ long-term foreign and local currency corporate credit ratings.

On the other hand, Crisil gave the highest ratings at P1+ for TPC's Rs 500 crores short-term debt programme. The P1+ rating indicates that the degree of safety with regard to timely payment of interest and principal on the instrument is “very strong.” Icra has reaffirmed the LAAA ratings for the Rs 1,000 crore long-term debenture programme. However, S&P disagrees with the ratings offered by Crisil-Icra and observed “The outlook revision reflects concerns on rising debt levels and increased exposure to project completion and stabilisation risks.” S&P’s credit analyst Ankush Taneja said, “The ratings on Tata Power are constrained by its high sensitivity to regulatory action in the Mumbai license area, its exposure to riskier investments and increasing competition and the aggressive expansion plans of the company.”

Foreign Exchange Market

The rupee-dollar exchange rate has appreciated from Rs 45.49 on October 13 to Rs 45.31 on October 20.

Commodities Futures derivatives

According to a study conducted by the Associated Chambers of Commerce and Industry of India (Assocham), shows that 34 per cent of common investors invest between Rs 5 lakh and 10 lakh per annum in commodities market, while 13 per cent of them prefers to invest Rs 10 lakh plus per annum. The survey covered 240 market players, engaged in channelising investor surpluses in various savings instruments, in Delhi , Chennai, Ahemdabad, Bangalore , Mumbai, Ludhiana and Kolkata. It points out that 24 per cent of the respondents choose to park in the range of Rs 1 lakh to 5 lakh in commodities market, whereas 3 per cent respondents opt for investing in futures commodities market at amount less than Rs 1 lakh. The remaining 26 per cent among surveyed didn’t clarify their preference.

At present 120 commodities are being traded in commodities futures market in three national commodities exchanges—Multi Commodity Exchange of India (MCX), National Commodity & Derivatives Exchange (NCDEX), National Multi Commodity Exchange (NMCEX)—and 24 regional exchanges. On an average, the daily business is Rs 15,000 crore in these exchanges, which came into being about 8 years ago or so.

Gold and silver are the most sought after commodity traded in commodities futures market with 32 per cent of the respondents choosing to invest in them. These provide the most beneficial deal to its players that it offers the highest gains through hedging, thereby reducing risks from the enormous degree of volatility involved in the prices of these two precious metals. The survey said that 15 per cent of respondents choose to invest in metals.

An expert committee set up under the consumer affairs ministry’s additional secretary and financial advisor to facilitate standardisation in agricultural commodities will submit its report soon has been stated by L Mansingh, secretary in the consumer affairs ministry. The committee is expected to come out with its findings by November-end. At present there are many different organisations like Agmark and BIS that set different standards for agricultural commodities. This committee having members from the ministry of commerce, the ministry of agriculture and also the ministry of food processing is studying the various standards.

The committee is also discussing whether Codex standards should be made applicable across the board. The Codex Alimentarius Commission (CAC) is an intergovernmental body to implement the Joint FAO/WHO Food Standards Programme, which was established by an FAO Conference resolution in 1961 and a World Health Assembly resolution, WHA 16.42, in 1963. Its principal objective is to protect the health of consumers and to facilitate the trade of food by setting international standards on foods (i.e. Codex standards) and other texts, which can be recommended to government for acceptance.

Corporate Sector

Europe ’s second-largest steel maker, the $17 billion Corus Group, has accepted Tata Steel’s acquisition offer (of $ 8 billion), creating the world’s fifth-largest steel behemoth with a combined annual capacity of 23.5 million tonnes. The deal is likely to be closed by January 2007.

India ’s largest software firm, Tata Consultancy Services (TCS), has posted a 42.4 per cent increase in sales revenue at Rs 4,495 crore in Q2 2006 and its net profit has risen by 43.4 per cent to Rs 1,019 crore over the same period a year ago.

Wipro Limited has reported a 41 per cent growth in sales revenue at Rs 3 546 crore during Q2 2006, from Rs 2,506 crore in the corresponding period a year ago. The company's net profit for the quarter ended September 2006 has surged by 46 per cent to touch Rs 700 crore from Rs 478 crore during the same period a year ago. Wipro’s revenue from the global IT services has grown by 44 per cent to Rs 2,720 crore.

Satyam Computer Services Limited has registered a 28.6 per cent increase in net profit during the second quarter (Q2) of 2006 at Rs 322.3 crore as compared with Rs 250.7 crore in the corresponding quarter a year ago. Its total income has increased by 37.6 per cent to Rs 1,537.7 crore from Rs 1,117.3 crore in Q2 2005-06. Satyam has added 35 new clients and also recruited 4,025 employees in the quarter under review, taking its headcount to over 35,000 employees.

During Q2 2006, Gujarat Ambuja Cements (GACL) has posted a 52 per cent growth in net sales at Rs 984 crore against Rs 647 crore in Q2 2005. The company's net profit has galloped by 225 per cent at Rs 244.7 crore against Rs 75.3 crore in the corresponding period previous year. The company has sold 3.21 million tonne of cement during the quarter, up 9 per cent compared with a year ago. The company, along with Ambuja Cement Eastern Limited, has planned a total capital outlay of Rs 950 crore to augment its cement capacity by setting up a clinker unit of 2.3 million tonne in Chhattisgarh. It is also setting up three power plants of 81-mega watt altogether.

Grasim Industries has registered a 23 per cent rise in net sales at Rs 2010.8 crore for the quarter ended September 2006 and net profit has augmented by 80 per cent to Rs 337.8 crore over the same period previous year. The chemical and sponge iron businesses of the company have suffered setbacks. There has been a shutdown in the captive power plant, which led to lower production and lower sales volumes in chemical business. In sponge iron segment, due to inadequate availability of natural gas, the capacity utilisation has been lower.

UltraTech Cement has reported a growth of 57 per cent in net sales for the quarter ended September 2006 at Rs 1004 crore as against Rs 639 crore over the same period a year ago. The company's net profit has stood at Rs 127.4 crore during the quarter under review against Rs 80 lakh over the same period previous year.

India’s second largest pharmaceutical company, Cipla, has posted a 47 per cent rise in net profit at Rs 180.3 crore during Q2 2006 as compared with Rs 122.6 crore for the same period previous year. The company’s total income has gone up by 36 per cent to Rs 915.10 crore during the period under review from Rs 673.23 crore in Q2 2005. The company is currently on a major capacity expansion drive and is planning to acquire 80 acre of land for setting up the largest pharmaceutical formulation plant in the country, with an investment of about Rs 650 crore, at the Bhootkhamb SEZ near Keri in Goa .

India’s fourth largest pharmaceutical company Nicholas Piramal India Limited (NPIL) has reported a 22 per cent increase in its net profit to Rs 67 crore during Q2 2006 from Rs 54.9 crore of the corresponding quarter a year ago on the back of increased overseas revenues and improved performance in the domestic formulations business. Total income of the company has gone up by 21 per cent to Rs 442.7 crore as against Rs 366 crore in Q2 2005.

The Bangalore-based biotech major Biocon has posted a 24 per cent growth in sales revenue at Rs 249 crore during Q2 2006 and a marginal 4 per cent increase in net profit at Rs 45.34 crore over the same period a year ago.

The world's second largest forging company, Bharat Forge Limited, has posted a hike of 20.1 per cent in net profit at Rs 62.2 crore for the quarter ended September 2006 from Rs 51.8 crore in the same period previous year. The company's net sales have increased 21.08 per cent to Rs 469 crore for Q2 2006 from Rs 388.06 crore a year ago.

The Pune-based two-wheeler company, Bajaj Auto, has reported a 28 per cent increase in sales revenues to Rs 2,578.4 crore for the quarter ended September 2006, from Rs 2,003 crore for the same quarter a year ago. The increase in net profit though has been lower by 10 per cent to Rs 317.6 crore, owing mainly to the rise in the cost of key inputs, such as steel, aluminium and tyres. The company's total vehicles sales have grown by 27 per cent at 7.1 lakh units during the quarter under review and its exports have surged by 81 per cent to 1.1 lakh units over a year ago.

Aditya Birla Nuvo, a diversified company with business portfolios ranging from textiles and fertilisers to financial services and telecom, has reported 64 per cent increase in net profit for the second quarter (Q2) of 2006-07 to touch Rs 75.7 crore, as against Rs 45.9 crore in same period previous year.

Reliance Industries Limited has reported a 36 per cent growth in sales revenue at Rs 29,550 crore in Q2 2006 and a 9 per cent rise in net profit at Rs 2,709 crore over Q2 2005. The improved petrochemicals margins offset the impact of 40-days plant shutdown at its Hazira refinery in Gujarat due to flood. While, the petrochemicals volume has stood at 3.96 million tonnes, a year-on-year growth of 17 per cent.

Engineering and construction major Larsen & Toubro Limited has posted a healthy 41 per cent increase in net profit for Q2 206 at Rs 201.2 crore backed by good order backlog position. Profit margins in engineering and construction segment, electrical and electronics and machinery and industrial products segments have gone up to 8.5 per cent from 5.4 per cent, 17.7 per cent from 15.6 per cent and 16.7 per cent from 12.2 per cent, respectively during the quarter under review.

The Anil Ambani flagship company Reliance Energy Limited has reported a 34 per cent growth in net sales at Rs 1407.6 crore in Q2 2006, while the total expenditure has shot up by 46 per cent to Rs 1230 crore from Rs 839 crore in Q2 2005. The rise in expenditure has been largely to due to interest cost, which has gone up to Rs 671 crore from Rs 553 crore. The company's net profit has risen by 16.8 per cent to Rs 186.3 crore from Rs 159.5 crore.

Hindalco Industries Limited, the flagship company of the Aditya Birla Group, has posted an outstanding performance for the quarter ended September 2006. The company's net sales have grown by 74 per cent to Rs 4,634 crore from Rs 2,659 crore. Its net profit has surged by 90 per cent to Rs 597.6 crore vis-a-vis Rs 313.8 crore in Q2 2005. Driven by strong aluminium prices on the London Metal Exchange, aluminium business revenue has increased by 31 per cent to Rs 1,852 crore from Rs 1,412.6 crore.

India’s largest private carrier Jet Airways has posted a net loss of Rs 55 crore in Q2 2006 as compared to a profit of Rs 68.6 crore in Q2 2005, stiff competition and the highest-ever prices of aviation turbine fuel (ATF) have been the major factors responsible for the poor performance of the company. The total income for the company has increased by 37.5 per cent to Rs 1,821 crore during the quarter ended September 2006 from Rs 1,324 crore in the same period a year ago. Other income has jumped to Rs 206 crore in the quarter under review from Rs 44.6 crore in the same quarter previous year; mainly due to a profit of Rs 161.7 crore from the sale and subsequent lease back of three Boeing 737 aircraft.

External Sector

According to World Investment Report 2006 released by UNCTAD, India ’s share in the overall global foreign direct investment inflows in 2005 stood at $6.59 billion, which is less than 1 per cent of the total $916 billion, and 20.5 per cent higher than $5.47 billion inflows during 2004. Despite this rise India has slipped seven notches to 119 in the inward foreign investment performance index from 112 in 2004. Outward flows by Indian firms in 2005 declined by 32 per cent to $1.36 billion from $2.02 billion during the previous year. However, this figure is expected to change this year as Indian companies are on an acquiring spree. Total FDI inflows into India from 1980 till 2005 stood at $45.27 billion, while outward FDI flows stood at $9.56 billion.

In comparison to India , China 's slice of the global pie stood at just under 8%, the largest among all developing countries, with FDI inflows of $72.40 billion in 2005, a jump over the previous years figure of $60.63 billion. Of the overall figure, flows to developing countries rose 37% to $542 billion during the year.

Some other key points from the report include that Indian received $120 billion FDI in real estate in 2005. China attracted $ 5.4 billion in its real estate sector during the same period. Only one Indian state owned firm - Oil and Natural Gas Corporation - is in the list of top 100 non-financial transnational corporations from developing countries (ranked 26 on the basis of its foreign assets in the list).

The UNCTAD report said the United Kingdom was the largest recipient of FDI flows in 2005, receiving $164.53 billion, followed by the US with $99.44 billion, China $72.406 billion, France $63.57 billion and the Netherlands $43.63 billion.

In terms of outward FDI flows, the Netherlands emerged on top of the list with $119.45 billion of investments made overseas. France comes next with $115.66 billion, followed by UK with $101.09 billion, Japan $45.78 billion, Germany $45.6 billion and Switzerland $42.9 billion.

The report said the growth in FDI inflows was spurred by cross-border mergers and acquisitions, which reflected strategic choices by transnational corporations following increased corporate profits and the recovery of stock markets. The services sector, particularly finance, telecom and real estate, gained the most from the surge in FDI flows. The share of investments in manufacturing declined, but there was a steep rise in FDI in natural resources, especially oil and gas.

UNCTAD said FDI flows would rise further in 2006, on the back of continued economic growth, increased corporate earnings and policy liberalisation. However, factors such as high oil prices, rising interest rates and increased inflationary pressures, which restrain economic growth, may dampen the increase in investments, it added.

Information Technology

Revenues from insurance (BPO) off shoring to India are expected to grow to around $2 billion by 2010 from the present $690 million, according to a report by research company Value Notes. The report also estimates that the industry is expected to see close to 100,500 employees by 2010. According to the report, mounting cost pressures, increasingly stringent regulatory compliance and the need to differentiate product offerings will make off shoring a growing imperative for the global insurance industry.  The report says off shoring of insurance services to India will be propelled into a higher growth phase with more than 30 per cent annual growth every year for the next three years. However, insurance industry dynamics have changed rapidly in the last two to three years owing to rising natural calamities, fraud and changing consumer demographics. The Indian offshore services provider landscape consists of captives of large insurance companies, third party vendors and joint ventures. The report suggests that while, traditional services such as claims processing, policy management will continue to provide volume growth to offshore BPO providers, new services such as analytics and decision support will drive value growth.

The number of “heavy users” of the Internet has more than doubled since 2001 — from 16 per cent in 2001 and 20 per cent in 2004 to 38 per cent in 2006.  Moreover, “heavy users” spend an average of 8.2 hours per week on the Internet, according to the I-Cube 2006 report prepared by the Internet And Mobile Association of India (IAMAI) and IMRB International. Concomitantly, the percentage of light Internet users has steadily declined from 63 per cent in 2001 to 28 per cent in 2006.  The study indicates that school-going kids spend an average of a little over five hours a week on the Internet, while college going students spend an average of over seven hours a week. Older men spend an average of nearly 10 hours a week. Among women, working women spend an average of nine hours and non-working women spend nearly six hours a week on the Internet. The study also establishes that the average time spent on the Internet in terms of minutes per week increases with the increasing age of the user. The active Internet users exhibit a marked increase in usage as they graduate from school to college, and then onto their professional lives.

Telecom

On average, each Indian mobile subscriber spends around 15 minutes every day on the phone, according to the latest data from TRAI. In comparison, according to figures based on various researches, including those by Pricewaterhouse Coopers, the Chinese use the mobile phone for only 9 minutes, while the Singaporeans use it for over 10 minutes a day. Australians use it for less than 4 minutes, Malaysians for around 6 minutes and the Thais for around 7 minutes a day. More importantly, the minutes of use for mobile phones have grown by 38 per cent in the last 18 months from just over 10 minutes a day at the end of 2004. This is due to two factors: in 2003 the government made incoming calls free under a new regime; and tariffs have dropped by nearly half in the last 2 years, making them the cheapest worldwide.

*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.

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