Current Economic Statistics and Review For the Week Ended September 15

A silent but distinct change has occurred in the behaviour of scheduled commercial banks during the past five years since 2002-03 or thereabout. Earlier, for about a decade after the financial sector reforms began in the early 1990s, the banks were extremely shy of expanding their credit base economy-wide generally, and in particular, for agriculture, small-scale industries, small borrowers and other informal sectors. The experiences of the 1970s and 1980s had shown how, amongst other things, bank credit had played a major role in accelerating the growth process as well as in stimulating improved employment growth, particularly in rural as well as urban non-farm sectors. A decisive shift in credit distribution in favour of a vast range of informal sectors as well as for underdeveloped regions and states then had helped widen the demand base of the economy and thus contribute to a more dispersed growth sectorally and regionally.

Contrariwise, during the whole of the 1990s, the scheduled commercial banks, faced as they were with the twin burdens of serious infirmities in operations following the unprecedented banking growth of the past and of radical reform measures, sought to curtail their credit delivery arrangements. An attempt made to compare bank credit to GDP ratios for three major sectors, namely, agriculture, industry and services, shows that the erosion in the ratio has taken place in all sectors, though the decline was the steepest in agriculture. A priori this was due to the inter-play of demand-supply forces; more significantly, on the supply side, banks showed conscious reluctance to expand their credit-base – a situation which continued up to 2002-03 (Graph A) and in which banks preferred to park their surplus liquidity in government securities rather than advance commercial loans. Apart from an acute risk aversion, which banks exhibited as a fall out of the vast NPAs, which they carried in their books and the implementation of various prudential norms which affected their exposure to the agricultural sector, it was also a situation of weak demand from the industrial sector in the context of industrial recession that the economy faced.

Interestingly, now the silent change that has been occurring in the banks’ attitude to credit delivery appears to follow from two sources, namely, the socio-political pressures to expand credit delivery for different sectors of the economy and the banks’ own strength acquired after over a decade of cleaning up of their operations and strengthening of their capital base and other prudential norms, including sharp reductions in NPAs.

Table 1: Trends in Bank Credit* to GDP** Ratios : By Sectors
							(*Rs.crore)*
Year	Agriculture		Industry		Services		Total
1990-91	17600	(11.0)	54970	(38.9)	41689	(19.9)	114258	(22.4)
1991-92	19406	(10.4)	62153	(40.0)	48896	(19.7)	130455	(22.1)
1992-93	21149	(10.2)	72089	(40.1)	56349	(19.8)	149587	(22.2)
1993-94	22467	(9.3)	81826	(39.9)	64887	(19.4)	169179	(21.7)
1994-95	23911	(8.6)	90450	(36.4)	79055	(20.3)	193415	(21.1)
1995-96	26879	(8.9)	109236	(36.2)	96702	(20.6)	232816	(21.7)
1996-97	30222	(8.3)	131287	(38.5)	108024	(20.0)	269533	(21.7)
1997-98	33448	(8.6)	150705	(39.8)	123006	(19.7)	307159	(22.1)
1998-99	38076	(8.6)	174521	(41.2)	143587	(19.6)	356185	(22.3)
1999-00	43264	(9.5)	200863	(44.1)	177126	(20.1)	421253	(23.5)
2000-01	48684	(10.6)	225105	(44.3)	225468	(23.4)	499257	(25.9)
2001-02	57869	(11.9)	254028	(47.4)	285316	(26.6)	597213	(28.5)
2002-03	69972	(14.9)	290727	(48.3)	345283	(29.1)	705981	(31.3)
2003-04	86090	(16.1)	322316	(47.9)	409735	(30.7)	818140	(32.2)
2004-05	110315	(19.8)	390814	(50.4)	515261	(34.1)	1016390	(35.7)
2005-06	na		na		na		1329773	(41.4)
* Average of current year and previous year’s outstanding amounts for
Scheduled Commercial Banks (BSR data)
** GDP at factor cost current prices. GDP data used from 1999-2000
are 1990-00 series and before that 1993-94 series are used.
na : Not available Note : Figures in brackets are percentage to respective GDP at factor cost

As a result, improvements have been taking place all around the regional and sectoral distributions of bank credit. In the first place, as shown in Table 1, the overall bank credit to GDP ratio has registered over 50 per cent rise since 2001-02. Following the governmental dictates of special targets set for the doubling of agricultural credit in three years, the improvement in bank credit to agricultural GDP ratio has been the sharpest. This is also reflected in rates of increases in direct finance for agriculture in recent years

Table 2: Direct and Indirect Finance For Agriculture and Allied Activities by Scheduled Commercial Banks (Amount in rupees lakh)
	Amount Outstanding
	Agriculture	Per cent	Direct	Per cent	Indirect	Per cent
Year	Total	Increase	Finance	Increase	Finance	Increase
	1=(2+3)		2		3
Mar-02	6400855	23.7	4743042	9.2	1657813	99.5
Mar-03	7593522	18.6	5905756	24.5	1687766	1.8
Mar-04	9624504	26.7	7009873	18.7	2614631	54.9
Mar-05	12438487	29.2	9463537	35.0	2974950	13.8
Source: RBI, Banking Statistics: Basic Statistical Returns of Scheduled Commercial Banks in India , March 2005 (Vol. 34) and earlier issues

Interestingly, all other indicators, which had faced a setback in the 1990s, have been showing signs of improvement after 2001-02. Our separate studies show that even credit-deposit ratios at the rural as well as undeveloped state and district levels have been looking up during the past four to five years since 2002-03 (Tables 3 and 4).

Table 3: Regional Scenario of Credit-Deposit Ratios
Region		March 2005			March 2002			March 1996				March 1992			December 1982		December 1972
		San- Ction		Utili-sation	San- ction		Utili- Sation	San-ction		Utili- sation		San-ction	Utili- Sation		San-ction	Utili- sation	San-ction	Utili-sation
Northern		59.5		62.2	56.2		55.0	51.4		50.4		51.1	49.3		70.0	67.7	47.6	46.6
North-Eastern		35.0		44.6	27.2		53.2	35.5		41.1		46.7	66.3		41.2	57.5	36.3	71.4
Eastern		45.5		50.4	37.6		41.4	47.0		46.4		49.5	49.1		56.1	55.2	62.9	62.6
Central		40.8		45.8	33.9		38.4	40.0		42.0		47.6	50.2		47.8	50.6	39.1	44.4
Western		83.5		71.8	79.7		71.3	72.2		71.4		58.2	56.5		73.7	73.0	76.2	71.8
Southern		78.1		83.9	64.6		68.9	74.2		74.8		76.5	77.7		79.2	80.2	91.1	94.7
All-India		66.0		66.0	58.4		58.4	59.8		59.8		57.7	57.7		67.1	67.1	66.4	66.4
Source: As in Table 2
	Table 4 :Year-End and Incremental Credit-Deposit Ratios By Population Groups:Credit Based on Sanction (Scheduled Commercial Banks including RRBs)

	Period-End C-D ratio (in percentages)
			Rural			Semi-Urban			Urban		Metropolitan			Total
	Dec-72		47.7			41.9			57.2		87.5			67.2
	Dec-82		61.0			51.7			57.6		84.9			67.1
	Mar-92		57.9			46.4			53.6		65.1			57.7
	Mar-95		48.6			39.7			46.5		68.8			55.6
	Mar-02		41.8			34.3			42.4		82.5			58.4
	Mar-03		43.7			35.3			42.6		82.8			59.2
	Mar-04		43.6			37.3			45.5		75.9			58.2
	Mar-05		51.6			44.2			50.5		83.7			66.0
	Incremental C-D Ratio (in percentages)
	1972-82		62.0			53.5			57.7		84.3			67.1
	1982-92		57.1			44.6			52.4		60.2			55.0
	1982-95		46.5			37.4			44.5		66.7			53.8
	1992-05		50.3			43.8			49.9		86.7			67.5
	1995-05		52.6			45.6			51.6		88.0			69.1
	2003-05		89.7			83.9			77.7		86.9			84.3
	Source: As in Table 2

At another level, there are distinct indications to hypothesize that the expansions in bank credit started in 2002-03 (Graph A) began to stimulate general real economic activity in the following year 2003-04 and thereafter. As shown in Table 5, the acceleration in growth, including that in agriculture, began in 2003-04. The latest three years show average annual GDP growth of 8.1 per cent as against 4.7 per cent during the previous three years; all sectors of the economy have exhibited this buoyancy in growth.

Table 5 : Recent Trends in Real GDP and Sectoral Growth
(In per cent per annum)
Year	Agriculture	Industry	of which	Services	Total
	etc.		Manu-		GDP
			facturing
2000-01	0.0	6.3	7.7	5.6	4.4
2001-02	6.2	2.7	2.5	7.1	5.8
2002-03	-6.9	7.0	6.8	7.3	3.8
Annual
Average	-0.2	5.3	5.7	6.7	4.7
2000-2003
2003-04	10.0	7.6	7.1	8.2	8.5
2004-05	0.7	8.6	8.1	9.9	7.5
2005-06	3.9	8.7	9.0	10.0	8.4
Annual
Average	4.9	8.3	8.1	9.4	8.1
2003-2006

That is not all; the above phenomena are reflected in many other macro-economic indicators. Per capita private final consumption expenditure (PFCE) grew at an annual rate of 5.3 per cent during 2003-05 as against at an annual rate of 1.5 per cent during the preceding three years. Domestic saving and capital formation rates have experienced sudden jumps in 2002-03 and remained high thereafter. For three years 2001-02 to 2003-04, the current account on balance of payments (BoP) remained in surplus suggesting that the country was exporting capital abroad due to inadequate domestic investment but thereafter the situation stands transformed in favour of a significant current account deficit to finance increased investment.

Also, this impetus to the growth process had not originated either in expanded public expenditure programme or autonomous increase in private investment. Nor has there been any noticeable improvement in foreign direct investment (Table 6)

Table 6 : Trend in Revenue and Developmental Expenditure
(Centre and States)				*(Rs.crore)*
Year	Revenue Expenditure		Developmental Expenditure.
1990-91	163520	(28.75)	97724	(17.18)
1991-92	185905	(28.46)	109372	(16.75)
1992-93	203043	(27.13)	118202	(15.79)
1993-94	232650	(27.08)	129042	(15.02)
1994-95	272874	(26.94)	150367	(14.85)
1995-96	303582	(25.55)	165361	(13.92)
1996-97	343548	(25.11)	185368	(13.55)
1997-98	385302	(25.31)	201399	(13.23)
1998-99	463945	(26.65)	239720	(13.77)
1999-00	540423	(27.59)	274483	(14.01)
2000-01	595595	(28.26)	308546	(14.64)
2001-02	652967	(28.62)	332224	(14.56)
2002-03	726706	(29.66)	358450	(14.63)
2003-04	855071	(30.98)	417768	(15.14)
2004-05	929243	(29.77)	445352	(14.27)
2005-06	1036936	(29.36)	546795	(15.48)
Note: Figures in brackets are percentages to GDP at current
Market Prices
GDP data used from 1999-2000 are 1999-2000 series and
for 1990-91 to 1998-99 is 1993-94 series
Source : RBI(2006),Handbook of Statistics on Indian Economy 2005-06

While the government’s development expenditure (centre and states together) had remained stuck until 2004-05 at about 14.5 per cent of GDP (Table 6), it has been only during the past 2 to 3 years that private investment has picked up in response to the availability of institutional finance for infrastructure and other areas; FDI flows have also begun to look up now (Table 7).

Table 7 : Investment Proposals and Under Implementation
	April 2006		April 2005		April 2004		April 2003		April 2002
Projects	Number	Rs.crore	Number	Rs.crore	Number	Rs.crore	Number	Rs.crore	Number	Rs.crore
At the beginning of the quarter	9976	2725829	9679	1884016	8839	1440312	7248	1503902	5740	1556462
New	615	156528	524	107052	472	68642	488	60100	679	40489
Transferred from	8	32511	11	31613	35	5751	28	7014	40	7476
Revived	44	5558	37	16721	56	27300	38	27518	88	5196
Total Live	10643	2920425	10251	2039401	9402	1542005	7802	1598535	6547	1609623
Completed	134	12196	151	20656	104	10652	137	11901	145	25962
Abandoned/Shelved	3	12910	5	7436	10	1481	35	64772	20	50074
No information available	74	12688	97	8432	81	12297	186	25716	134	5197
Transferred to	6	32360	12	31499	37	3071	35	20289	61	8555
Total Deletion	217	70155	265	68022	232	27501	393	122679	360	89788
Variation in cost		20746		28987		37286		12801		17787
At the end of the quarter	10424	2871016	9986	2000366	9170	1551790	7410	1488657	6187	1537622
Announcement	5368	1264286	5140	643446	4602	436905	3170	393600	1981	343687
Proposed	2145	714136	2020	542856	1831	399525	1921	429289	2034	526579
Under implementation	2911	892594	2826	814064	2737	715360	2319	665768	2172	667356
(per cent increase)	3.0	9.6	3.3	13.8	18.0	7.4	6.8	-0.2	24.8	9.5
Source: CapEX (2005), Centre for Monitoring Indian Economy Pvt.Ltd., Monthly Review of Investment Projects (August)

With the publication of the NSSO’s 61^st round (2004-05) results, we now have a fairly clear picture of the employment trends during different growth cycles. An increase of 5.8 per cent in total employment has been witnessed between 1999-2000 to 2004-05 in contrast to a fall of 5.5 per cent between 1993-94 and 1999-2000 (Table 8).While farm employment has experienced a steady fall during the past three decades and a half, non-farm employment in rural as well as urban areas grew rapidly during the 1970s and 1980s and fell or stagnated during the whole of the 1990s, but between 1999-2000 and 2004-05, there has occurred a spurt in non-farm employment (table 9). What is interesting is that while rural manufacturing employment has again picked in recent years, the growth has been the fastest in services sector areas.

Table 8 : Number of persons employed per 1000 person (ie., WFPR or WPR )
Round	Category	Usual Status
(year)	Of	Rural			Urban			All
	Worker	Male	Female	Persons	Male	Female	Persons	Male	Female	Persons
61^st	All(ps+ss)	546	327	439	549	166	365	547	287	420
(2004-05)	Ps	535	242	391	541	135	346	536	215	380
55^th	All(ps+ss)	531	299	417	518	139	337	527	258	397
(1999-00)	Ps	522	231	380	513	117	324	520	203	365
50^th	All(ps+ss)	553	328	444	521	155	347	545	286	420
(1993-94)	Ps	538	234	390	513	121	327	532	206	375
43^rd	All(ps+ss)	539	323	434	506	152	337	531	285	412
(1987-88)	Ps	517	245	385	496	118	315	512	217	369
38^th	All(ps+ss)	547	340	445	512	151	340	538	216	420
-1983	Ps	528	248	391	500	120	320	521	218	374
32nd	All(ps+ss)	552	331	444	508	156	341	543	297	423
(1977-78)	Ps	537	248	395	497	123	319	529	224	371
27^th	All(ps+ss)	545	318	*	501	134	*	*	*	*
(1972-73)
Note: ps : pricipal status; ss :subsidiary status; * : proportions not derived for 27th round.
Source: NSS Report No.515: Employment & Unemploy. Situation in India , 2004-05 (61st round)

Table 9: Per 1000 distribution of usually employed persons by broad
Industry Division (NIC 1998)
		All Category (pricipal +subsidiary status)(ps+ss)
Round	Year	Rural			Urban
		Male	Female	Persons*	Male	Female	Persons*
Agriculture
61st	2004-05	665	833	728	61	181	89
55th	1999-00	714	854	764	66	177	89
50th	1993-94	741	862	786	90	247	126
43rd	1987-88	745	847	783	91	294	138
38th	1983	775	875	813	103	310	150
32nd	1977-78	806	881	834	106	319	156
Non-Agriculture
61st	2004-05	335	167	272	939	819	911
55th	1999-00	286	146	236	934	823	911
50th	1993-94	259	138	214	910	753	874
43rd	1987-88	255	153	217	909	706	862
38th	1983	225	125	187	897	690	850
32nd	1977-78	194	119	166	894	681	844
- Manufacturing
61st	2004-05	79	84	81	235	282	246
55th	1999-00	73	76	74	224	240	227
50th	1993-94	70	70	70	235	241	236
43rd	1987-88	74	69	72	257	270	260
38th	1983	70	64	68	268	267	268
32nd	1977-78	64	59	62	276	296	281
- Construction
61st	2004-05	68	15	48	92	38	79
55th	1999-00	45	11	33	87	48	79
50th	1993-94	32	9	23	69	41	63
43rd	1987-88	37	27	33	58	37	53
38th	1983	22	7	16	51	31	46
32nd	1977-78	17	6	13	42	22	37
- Trade,Hotel & Restaurent
61st	2004-05	83	25	61	92	38	79
55th	1999-00	68	20	51	87	48	79
50th	1993-94	55	21	42	69	41	63
43rd	1987-88	51	21	40	58	37	53
38th	1983	44	19	34	51	31	46
32nd	1977-78	40	20	33	42	22	37
' * ' Worked out by EPWRF applying the weights for males and females
based on the number employed in these gender categories.

The hypothesis that we are seeking to advance here is that the current upswing in the growth cycle is primarily bank finance-led. This stands to reason in many ways, the most crucial one being the dominance of self-employment amongst the populace and inadequacy of own savings amongst business enterprises. While the banks have sharply improved their credit base, it is not as though they have achieved healthy distributional goals. There is evidence to the effect that they are continuing to prefer richer farmers and other big-size clientele in rural areas (Table 10) and easy sectors like housing, retail

credit, real estate, capital market and commodity dealers, in urban areas. Even so, bank credit and the associated money supply are fungible and they have an ability to expand the demand base of the economy generally. The resulting growth may continue to be unequal, as surely it is. Overall, these tend to support the hypothesis that bank credit has a substantial role to play in the growth process and that it deserves to be used as a potent instrument of achieving distributional goals.

* This note is prepared by S L Shetty with the support of data compiled by R.Krishnaswamy, V.P. Prasanth and Bipin Deokar.

Rabi sowings are picking up across the country. As per the ministry of agriculture, wheat sowings have recorded a 69 per cent rise to 26.3 lakh hectares till November 10, 2006 from 15.6 lakh hectares in the corresponding period last year. As per the experts it has resulted from higher market price of the commodity. Pulses acreages have also increased by 19 per cent to 56.8 lakh hectares during the same period as compared to 47.6 lakh hectare in the year ago. On the other hand, Sown acreages of oilseeds have dropped by 26per cent to 47.2 lakh hectare by the end of second week of November 2006 as against 63.6 lakh hectare a-year ago period owing to diversion of sowing area of major oilseed crop such as mustard in favour of pulses like gram.

As per the commerce ministry, the country might put a ban on exports of corn as demanded by poultry farmers and other users, and resort to import of corn for the first time in five years amid a domestic shortage caused by a fall in production. The maize prices in the country have risen by half from a year earlier, pushing up costs for poultry farmers and starch producers.

As per the Solvent Extractors’ Association of India (SEAI), the import of edible oils has gone down by 12 per cent to 44.2 lakh tonnes in the 2005-06 oil year (November-October) from 50.4 lakh tonnes a year ago due to higher domestic output and large carryover inventory of rapeseed-mustard held by the National Agricultural Cooperative Marketing Federation (Nafed), the import of non-edible vegetable oils have risen sharply by 73 per cent to 7.1 lakh tonnes from 4.1 lakh tonnes in the previous year on account of higher shipments.

As per the estimates of traders and industry experts, global black pepper production for the 2007 season (beginning December 2006) is likely to fall short of the average crop size. The reports have reiterated that the total global production between would range between 2,15,000 and 2,20,000 tonnes for the season 2007, reflecting a decline of 40,000 tonnes from the usual average crop size. While domestic pepper production has been pegged at around 50,000 tonnes, other major pepper producers like Indonesia , Malaysia , and Sri Lanka are expected to witness descending pepper output during the ensuing season. Only Vietnam , the world’s largest producer of black pepper, is estimated to have the normal crop size of 90,000-1,00,000 tonnes.

International Sugar Organisation (ISO) has estimated a higher global sugar surplus of 5.8 million tonnes for the year 2006-07. While sugar output is estimated at 158.3 million tonnes, consumption demand is likely to be 152.5 million tonnes. Brazil is expected to increase its output by 700,000 tonnes on year to 32.9 million tonnes, India’s production has been pegged at 24.5 million tonnes, and Thailand is expected to see a 1.42 million tonnes increase in its output to 6.5 million tonnes. Higher global surplus may not augur well for the country’s sugar exports, as and when the ban on exports is lifted, especially, in the wake of higher cane prices and a possible supply glut led by a bumper sugar crop in the country.

Cashew kernel exports from the country have declined by 8.14 per cent in value terms at Rs 1,222.9 crore during the first half of the fiscal year 2006-07. In volume terms the country exported 58,210 metric tonnes. However, the exporters have realised 6.7 per cent less per kg of cashew kernel exported during the same period to Rs 210per kg as against Rs 225 per kg earned in the same period last year.

A National Plant Variety Registry has been set up by the Protection of Plant Varieties and Farmers’ Rights Authority (PPV&FR) under the Union ministry of agriculture to register crop varieties. It would facilitate farmers and plant breeders to protect their IPR over breeds that they have developed indigenously. Around 12 crop species (rice, wheat, maize, bajra, sorghum, pigeon pea, chickpea, lentil, mung, black gram, peas and rajma), breeds of which have been developed by Indians have been identified for registration. The breeder would gain exclusive commercial rights for a new variety of a crop for 15 years.

Industry

According to the Manufacturing ASCON Survey conducted by the CII, a total of 34 manufacturing sectors out of 125 sectors have recorded production growth of more than 20 per cent during April-September 2006-07 as compared with the same period of the previous fiscal year, including power transformers, industrial furnace, textile machinery and tractors. Another 47 sectors have recorded a growth of 10-20 per cent and 31 sectors have registered growth rate of 0-10 per cent, according to the survey. Other sectors that led the growth include PVC, switchgears, power cables, circuit breakers, castings, fluid power and nitrogen boilers. Sectors reporting negative growth have been 14, lower than 20 sectors during the same period last year. Out of the 63 sectors that reported their sales performance, 19 sectors have registered growth of more than 20 per cent, 23 sectors have registered growth of 10-20 per cent, while 18 sectors have reported 0-10 per cent growth and only 3 sectors have recorded low or negative sales growth. The export performance of the manufacturing sector too has improved significantly; as many as 17 sectors have shown more than 20 per cent growth in exports, 7 sectors have recorded 10-20 per cent growth while 10 sectors have recorded 0-10 per cent growth.

The domestic pharma market is poised to accelerate at 13.6 per cent between 2006 and 10 and is expected to become a $ 9.48 billion industry by 2010. The Indian pharma market has consistently seen growth of 9.5 per cent CAGR between 2000 and 2005 and touched the market size of $ 5.13 billion by March 2005, according to a study paper by the Assocham and Cygnus. Towards March 2006, the growth rate has jumped to 11 per cent to reach a market size of $ 5.7 billion. The FDI in pharma industry is estimated at $ 172 million during 2005-06, recording a CAGR of 62.6 per cent during the period beginning 2002-06. According to estimates, contract research and manufacturing (CRAMS) market in India stood at $ 532.10 million in 2005, of which contract manufacturing accounted for 84 per cent of the total market size while contract research excluding clinical trials accounted for the remaining 16 per cent. Both the CRAMS segments have registered a robust growth of over 40 per cent in 2005 over the previous year. On clinical trials, the study comments that in 2005, the industry for clinical trials in India was $ 100 million and this segment has been growing at an accelerated pace since India offers a lot of advantages in the clinical trials domain such as cost advantage compared to Western countries.

The ministry of textiles has carried out a survey on the status, annual capacity, actual production, exports and proposed investment for technology upgrade of textile engineering industry. Of the Rs 1,40,000 crore investment required by the industry for its modernisation and expansion up to 2010, about Rs 70,000 crore is needed for installation of plant and machinery, the survey revealed. The production of textile machinery, parts and accessories has seen an increase from Rs 1,668 crore in 2004-05 to Rs 2151 crore in 2005-06, registering an increase of 28 per cent. Despite the buoyancy in manufacturing sector, the imports of both new and second-hand machinery have risen from Rs 2,575 crore to Rs 3,765 crore but exports have not gone up comparatively; they stood at Rs 690 crore in 2005-06 against Rs 587 crore in the previous year. To meet the growing demand, intensive consultations have been started with Chinese and Japanese manufacturers for setting up joint ventures in the country; the effort is a part of the government’s strategy as domestic manufacturers have not been able to meet local demand and textile sector has to rely on imports which have soared to nearly 4,000 crore per annum. Currently, the waiting time for delivery of machines is reported to be between 16 and 18 months; there is an urgent need to shorten the time required.

Infrastructure

The finance ministry is trying different means of financing the estimated $ 320 billion required for the infrastructure sector in the next five years, which by general opinion should come from the domestic sector. The ministry has plans to tap retail investors, hoping that this segment will be able to provide the momentum for growth and expansion in the infrastructure sector. The ministry has already accepted the R H Patil committee report on corporate bonds and securitisation; one of the recommendations of the committee was that retail investors should be encouraged to participate in the sector through stock exchanges and should also be encouraged to participate in the corporate bond market through mutual funds.

Power generation capacity addition during the Tenth Plan period (2002-07) is slated to fall far short of the original target of 41,000 MW as originally fixed by the ministry and subsequently scaled down during the mid-term review of the Tenth Plan to 36,956 MW. The Power Secretary, Mr R.V. Shahi, said the country is likely to see a capacity addition of 30,642 MW by the end of current Plan period (March 2007), about 75 per cent of the original target. A total of 17,700 MW of additional capacity has been commissioned so far and projects with capacity of another 12,898 MW are expected to come up during the remaining five months till March 2007.

With the main objective of encouraging bio-fuels, especially bio-diesel, and assuring sustainable agricultural growth, rural development, energy security and equal opportunity for the masses with overall environmental protection, a Bio-diesel Association of India (BDAI) has been formed with a three-pronged objective - ensure energy security, support agriculture and sustain environment. This is sought to be achieved through a revolution in the form of bio-fuels i.e. bio-ethanol and bio-diesel. A comprehensive bio-fuels policy that judiciously balances the interests of primary producers, processors and consumers can help boost out bio-energy output, meet rising energy demand, help raise rural incomes and sustain the ecology, through green fuels, BDAI has asserted. Several corporates including those already in the energy sector as well as aspiring new entrepreneurs and service providers are already members of the association.

Indian Oil Corporation Ltd has constituted an internal group on bio-fuels to oversee at commercialisation of various projects on bio-diesel. The group is currently in talks with five states, Chhattisgarh, Andhra Pradesh, Rajasthan, Uttaranchal, and Tamil Nadu, to implement the project on a large scale. Subsequently, the project is likely to be extended to Orissa and Maharashtra . Indian Oil has entered into projects for promoting 5 per cent and 10 per cent bio-diesel blend with Indian Railways, Escorts Tractors, Tata Motors, and Haryana Roadways. The areas identified by Indian Oil for giving the programme a further boost include need for development of high yielding variety of jatropha, systematic study on plantation and seed yield, exploring the cost effectiveness of production technologies, development of antioxidants or additives to improve shelf life of bio-diesel blend, study of compatibility of bio-diesel in different engines, and emission analysis of bio-diesel blends in different vehicles. Indian Oil's research and development centre has successfully optimised the process for production of bio-diesel. In a pilot plant at its R&D centre, Indian Oil has begun the production of bio-diesel produced utilising various vegetable oils.

Indian steel industry needs to upgrade its production capabilities and product offerings for the Indian automobile sector; the country's automobile industry is currently growing at around 15 per cent per annum, ahead of China 's 9 per cent and the global average of 5 per cent per annum. It is imperative for Indian steel makers to focus on the production of high-grade tensile and galvanised steels for automotive applications, especially in view of India 's potential to emerge as an export hub for such products. Steel companies such as Tata Steel have begun to scale up its offerings for the Indian automotive sector; from 2001, the company has been a supplier of products for the automobile industry and currently accounts for 45 per cent of the Indian market for automotive steels.

Oil India Ltd is planning to launch a second pilot project for coal liquefaction, a process that converts coal into petrol, diesel and other liquid fuels. Oil India has established its first pilot coal liquefaction plant at its R&D centre in Duliajan , Assam . The second pilot project would require an investment of Rs 20 crore; Hydrocarbon Technologies Inc of the US is being roped in to provide the technology. Oil India will consider commercial coal liquefaction only after analysing the results from this year-long second pilot project. Global crude prices would be taken into account prior to planning the first commercial coal liquefaction project; if crude prices rise beyond $ 40 a barrel, commercial coal liquefaction becomes viable.

The central government is considering a policy and legal framework to promote private sector participation in the emerging option of underground coal gasification (UCG) and has set 2010-11 as a deadline for commercial utilisation of UCG. The framework includes extension of fiscal benefits in the line of coal bed methane (CBM) policy. Apart from fiscal benefits, UCG may be notified as an end use under the present captive mining policy to facilitate allocation of coal blocks to potential entrepreneurs. The coal ministry has already approved a proposal from Neyveli Lignite Corporation for funding a pilot UCG project at its lignite reserves in Rajasthan. Also, ONGC has agreements in place with both NLC and Coal India Ltd for pilot UCG studies.

Full service carriers Indian Airlines, Jet Airways, Kingfisher Airlines and Air Sahara have decided to hike their fares by 3-5 per cent in the third week of November 2006 and the low-cost carriers (LCCs) are expected to follow suit in 2-3 weeks. Not only are the airlines planning to increase fares, but they also plan to reduce the number of tickets being sold at lower fares under various promotional schemes. The move to raise fares now is seen as an effort to rationalise prices. The decision has been taken at a meeting of the newly formed airlines' body, Federation of Indian Airlines (FIA). Indian plans to raise fares by Rs 200 on all sectors during the peak winter season between December and January. To gain market share, airlines have been cutting fares in quick succession, resulting in huge losses to the industry; the aviation sector is estimated to post losses to the tune of Rs 2,200 crore in 2006-07. The largest low-cost carrier Air Deccan has recorded a loss of Rs 340 crore for 15 months ending June 2006, Kingfisher Airlines and Spice Jet have reported net loss of Rs 240 crore and Rs 41.4 crore, respectively in the first year of operation. Jet, the largest private sector carrier has also recorded a loss of Rs 55 crore in the second quarter of 2006-07. Domestic seat capacity has increased by almost 40 per cent in 2005-06, much faster than the 28 per cent rise in passenger traffic.

Inflation

The annual point-to-point inflation rate based on wholesale price index (WPI) rose by 5.30 percent for the week ended November 04,2006 as compared to 5.09 per cent in the last week or at a lower rate of 4.04 per cent during the corresponding week last year.

During the week under review, the WPI rose to 208.8 from 208.4 in the previous weeks’ level (Base: 1993-94=100). The index of ‘primary articles’ group, (weight 22.02 per cent), increased by 0.4 percent to 214.2 from its previous week’s level of 213.3, mainly due to increases in prices of ‘food article like beef and buffalo meat, poultry chicken, eggs and fish marine, bajra, milk, urad , wheat and gram The index of ‘fuel, power, light and lubricants’ group (weight 14.23 per cent) remained unchanged at the last week level of 329.5. The index of ‘manufactured products’ group also increased by 0.2 per cent to 180.0 from 179.7 during the week under review. Food Products like bran, skimmed milk powder and oil cake,rice bran oil,sunflower oil, mustard oil and groundnut oil, textiles, chemicals and chemical products Basic metals and alloys and Machinery and machine tools prices rose.

The latest final index of WPI for the week ended September 09,2006 has been revised upwards; as a result both, the absolute index and the implied inflation rate stood at 207.8 and 5.22 per cent as against their provisional levels of 206.6 and 4.61 per cent, respectively.

Financial Markets

Blue Bird (India) Ltd, a manufacturer of paper based notebooks and stationary products, is entering the capital market with a public issue of 87.75 lakh equity shares of Rs 10 each for cash at a premium to be decided through a 100 per cent book building process. The issue opens for subscription on November 16 and closes on November 22. The price band for the issue has been fixed at Rs 90 to Rs 105. Out of the net offer to the public, 50 per cent is reserved for allotment to qualified institutional buyers, of which 5 per cent is reserved for mutual funds; 15 per cent is reserved for non-institutional buyers and the balance will be allotted to the retail investors on a proportionate basis. The issue constitutes 25.07 per cent of the fully diluted post issue capital of the company. The issue funds will finance the construction of the company's second notebook manufacturing and printing unit in South India and expand capacity at its existing Pune facility.

The Bangalore-based Sobha Developers Ltd (SDL) is coming out with a public issue of 88,93,332 equity shares of Rs 10 each through book building process in the price band of Rs 550-Rs 640 per share. The issue comprises a reservation of up to 8,89,300 equity shares for SDL's permanent employees and a net issue to the public of 80,04,032 equity shares. It constitutes 12.20 per cent of the post-issue paid-up capital of the company. The issue opens for subscription on November 23 and closes on November 29.

The BSE sensex maintained its winning streak, as buying continued at higher levels. Strong FII-inflows and revision in earnings estimates by brokerages have fuelled the latest bull-run on the bourses. For the week ended Friday (17 November), the Sensex gained 147 points (1.10%), to settle at 13,429.48 The S&P CNX Nifty advanced 18 points (0.47%) for the week ended Friday (17 November), to settle at 3,852.80. On 13 November, the Sensex jumped 116.09 points to 13,399 as select blue-chips were in demand. It gained 26.50 points to 13,425.50 on 14 November, as buying continued. On 15 November 2006, the Sensex has gained 43.87 points, settling at 13,469.37 on demand for banks and cement makers. On 16 November 2006, the Sensex finished 36.52 points higher, at 13,505.89, on buying interest for banking and cement stocks. Sensex lost 76.41 points on 17 November to settle at 13,429.48 on profit booking. It had struck an all time high of 13,678.04 in opening trade on that day.

For every one rupee that the Indian public gained when the Sensex crossed 13K at the end of October, the `foreign' shareholders gained Rs 3. The gain for the Indian public over the first 10 months of this year was Rs 42,000 crore, while the share of foreign holding rose in value by more than Rs 1,26,000 crore. More importantly, when the index crossed the 13,000-mark market cap of companies in which foreign holding is 50 per cent or more accounted for almost a third of the number of companies and nearly a quarter of the total Sensex value of Rs 16.5 lakh crore.

The trustee of a mutual fund cannot function on the board of an asset management company (AMC) of another mutual fund. SEBI proposes to amend the SEBI (Mutual Fund) Regulations in this regard. According to SEBI, trustees are privy to information pertaining to the conduct of business by the asset management company. The role of independent trustees is crucial to avoid conflicts of interest in a mutual fund.

The Nifty touched 3900 levels before easing down to close at 3852 in the spot market. The November Nifty futures continued to trade at a premium, closing at 3857 on Friday.

The December futures were held at 3856.95, which is a marginal discount to the November series. A premium on the future is indicative of bullishness, and expectations would still be inclined that way.

Under the weekly T-Bill auctions, the RBI mopped up Rs.2925.52 crore and Rs.1318 crore through 91-day T-Bill and 182-day T-Bill. From this, the RBI raised Rs.120.52 crore and Rs.615 crore under the Market Stabilisation Scheme (MSS) through 91-day T-Bill and 182-day T-Bill respectively. The cut-off yields for the 91-day and 182-day T-Bill were 6.6462% and 6.9298% respectively.

RBI conducted the auctions of State Development Loan (SDL), 2016 for eleven states for an aggregate amount of Rs.2431.23 crore. The cut-off yield of SDL 2016 for Andhra Pradesh, Himachal Pradesh, Maharashtra, Punjab, Rajasthan and West Bengal was 7.74%, for Jammu and Kashmir was 7.80% and for Manipur, Mizoram, Nagaland and Sikkim was 7.82%.

The Government of India have announced the sale (re-issue) of ‘’8.07 per cent Government Stock 2017” for a notified amount of Rs.5,000 crore through price based auction using multiple price method on November 24, 2006.

RBI issued modified guidelines on ‘When Issued’ transactions. The highlights of the modified guidelines such as WI’ transactions can be undertaken in the case of securities that are being reissued as well as newly issued on a selective basis; Stipulation that any ‘WI’ transaction must have a Primary Dealer (PD) as counterparty has been dispensed with ; Only PDs can take a short position in the ‘WI’ market. In other words, non-PD entities can sell the ‘WI’security to any counterparty only if they have a preceding purchase contract for equivalent or higher amount; Long position for re-issued security as well as newly issued security for non-PDs should not exceed 5% of the notified amount; Long or short position for PDs in case of re-issued security should not exceed 10% of the notified amount, while in case of newly issued security the short position of PDs should not exceed 6% and long position should not exceed 10% of the notified amount.

Despite fall in the international oil prices in recent times, Rakesh Mohan, deputy governor, Reserve Bank of India (RBI), has maintained that the incomplete pass-through of rising oil prices, particularly LPG and kerosene, has kept inflation under check. The other factors, namely declining intensity of oil usage, higher competition and stable inflation expectations, have also controlled inflation.

“The inflation management has been facilitated by an improved monetary fiscal interface, forces of competition unleashed by growing openness and deregulation of the economy. The relatively modest inflation (5.4% as on October 21) is attributable to a number of factors such as declining intensity of oil usage, incomplete pass-through in some cases, higher competition and finally stable inflation expectations in view of pre-emptive monetary policy tightening,

The weighted average YTM of G.S 2016 7.59% bond was 7.5372% on Nov 17, 2006 as compared to 7.5979% on Nov 10, 2006. The 1-10 year YTM spreads decreased by 5 bps to 56bps.

UTI Bank has tapped the debt market through issuance of upper tier II bonds with a tenure of 15 years and offering coupon of 9.35 per cent with a call option at the end of 10 years and if it is not exercised then the coupon is steeped up by 50 basis points.

HDFC has tapped the market to mobiles Rs 200 crore by offering 8.40 per cent for 3 years.

The rupee-dollar exchange rate has depreciated from Rs 44.45 on November 10 to Rs 45.10 on November 17 before touching a low of Rs 45.34 on November 15. The six-month forward premia closed at 2.01% (annualized) on Nov 17, 2006 vis-à-vis 1.77% on Nov 10, 2006.

Commodity futures market regulator Forward Markets Commission (FMC) is gearing up to considerably bolster its regulatory oversight once the Forward Contracts (Regulation) Amendment Bill 2006 is passed. The Bill, currently, is with the Parliamentary Standing Committee and could be tabled in the forthcoming winter session. Pending amendment, FMC has been internally working on draft regulations to monitor and govern a host of market participants and relationships amongst them, said Mr S. Sundareshan, Chairman, FMC. FMC has identified 15 areas for regulations for this purpose. These regulations, among others, intend to cover areas such as commodity pool operations, depositories, awareness and investor protection, portfolio management services or PMS managers, commodity brokerages / members, capital adequacy, customer interest, maintaining financial records and the like. To deter malpractices in futures trading the regulator has decided to levy penalties that are far from paltry. Indeed, penalties could become commercial in nature. For instance, unfair trade practices or malpractices will attract penalties extending to the whole of the profit made through the transaction resorting to such practices or as high as Rs 25 lakh.

Corporate Sector

Zee Telefilms has acquired a 50 per cent stake in Ten Sports at an enterprise valuation of $ 114 million (or $ 57 million for the stake sold) from Dubai based Taj Television.

Larsen and Toubro has entered into a technological collaboration with Mitsubishi Heavy Industries for manufacturing the equipments for power mega projects. The companies will together invest Rs 450 crore in the venture, currently registered as L&T Boilers Limited. Under the agreement, the Japanese company will transfer technology to L&T for manufacturing boilers.

Swiss cement company Holcim has raised its share in Gujarat Ambuja Cements Limited (GACL) by buying 50 million shares for Rs 685 crore. The company’s stake in GACL has now increased up to 18.4 per cent from about 14.8 per cent.

IVRCL Infrastructures and Projects Limited has received new orders worth Rs 343 crore in water, environment and power sector. The company has got Rs 113 crore order by Power Grid Corporation of India for power transmission line works in Bihar . Other major contracts include Rs 130 crore Kolkata environmental improvement project and Rs 92 crore order for water supply distribution network in various places in Bangalore awarded by Bangalore Water Supply and Sewerage Board.

Wipro Infotech, a division of Wipro Limited, has won Rs 304 crore contract for providing comprehensive IT outsourcing services to Dena Bank over a period of ten years.

Texmaco, a KK Birla group company, has received an order to supply 900 flat wagons to Container Corporation of India Limited (Concor). The company would supply 20 rakes comprising 900 bogie container flat wagons (BLC) valued at Rs 145 crore.

Export Sector

The government is likely to come out with a policy on FDI in credit information bureau (CIB). CIB is a repository of credit information with current and historical data on both existing and potential borrowers. CIB maintains both negative and positive database of credit information, which can be accessed by the lending institution. However, the bureau does not collect information on deposit accounts, current accounts and cheque accounts of a borrower. According to banking sources, the investment policy under discussion proposes to allow FDI up to 49 per cent of the total investment in a credit bureau. However, FIIs may not be allowed to invest in such ventures.

Import of cheap automotive spares from China has almost doubled to Rs 570 crore in the first six months of the current fiscal, being just Rs 8 crore short of the total imports from China in 2005-06. China 's share in the automotive component imports into India has grown to 7 per cent in 2005-06 from just 1.5 per cent (worth Rs 47.4 crore) in 2003-04. The Chinese components imported include steering systems, steel wheel rims, glass shields, tyres, oil cooling equipment and aluminium wheel alloys.

China

is pushing for a bilateral free trade agreement with India and grant of “market economy” status to it. An FTA between China and India , the world's most and second most populous nations, respectively, would benefit as many as 2.4 billion people, according to the official Chinese media.

*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.