Current Economic Statistics and Review For the Week Ended September 15

“The Incidence of Indebtedness of household is the percentage of households reporting indebtedness to either institutional or non-institutional agencies”

1. The RBI’s historical role in the sphere of rural credit especially agricultural credit.

2. Section 2 of this note brought out the historical perspective of the role played by RBI and NSSO in establishing a system of surveys which provides insights into different aspects of rural credit

4. Section 4 dealt with the asset holdings of different sector of Indian households.

5. Fifth section is utilized to bring about the size of debt and debt-asset ratio.

The part II of the note for brevity sake again divided into Part II A and Part II B. The present note Part II A after a brief analysis of the magnitude of the debt in rural and urban area deals with the role played by institutional and non institutional credit agencies

Magnitude of Debt

All claims against the household held by others were considered liabilities of the household. All loans payable by households to others, irrespective of whether they were in cash or kind were deemed as liabilities of the households. All loans taken in cash are cash loans irrespective of whether those loans were repaid in cash or in kind, with interest or without interest or loan taken against security or not, and also goods purchased on hire purchase basis also included in cash loans. All loans taken in kind (except cases of hire purchase) irrespective of whether those were already paid or yet to be repaid in cash or in kind were considered as kind loans payable. Other liabilities comprised all kind of loans payable by the household and also liabilities arising out of goods and services taken from doctors, lawyers, etc. Similarly, all liabilities to government and trade debt arising out of commercial transactions of the household also included in other liabilities. Goods from grocers, milkman etc taken on credit by the household and for which payment is made at frequent intervals were considered as other liability if they were not paid within due dates. Kind loans and other liabilities of a house hold taken together constituted current liabilities. Cash loans and current liabilities were collected with reference to the same date and added together will give liabilities of households as on that date.

The Debt is worked out in terms of cash loans in 1991 and 2002 surveys unlike in earlier surveys where debt included cash loans and other liabilities and hence data for 1991 and 2002 are not strictly comparable with those of earlier surveys. However, other liabilities form a miniscule percentage of total debt in every survey.

The magnitude of outstanding debt for the country as a whole as on 30^th June 2002 works out to be Rs. 1,76,795 crore distributed among 203.4 million household. Out of this, rural households which form about 73 per cent of total household owes an amount of Rs. 1,11,468 crore or 63 per cent of the total outstanding debt. On the other hand, 27 per cent of urban households are liable for 37 per cent of total debt which amount to Rs.65,327 crore (Table 1).

Table 1: Number of Households and magnitude of debt as on 30.6.2002
Household	All hhs	Indebted	Col 3 as	Cash	Percentages
Category		hhs	per cent of	loans	All hhs	Indebted	Cash
	(in lakh)	(in lakh)	Col 2	(Rs.cr)		hhs	Loan
1	2	3	4	5	6	7	8
All Households	2034	491	24.1	176795	100	100	100
Rural	1479	392	26.5	111468	73	80	63
Cultivators	882	262	29.7	81709	43	53	46
Non-cultivators	596	130	21.8	29759	29	26	17
Urban	555	99	17.8	65327	27	20	37
Self-employed	201	36	17.9	24341	10	7	14
Others	354	63	17.8	40977	17	13	23
Source: NSSO(2005), Household incidence of indebtedness in India as on 30.6.2002, 59th Survey (January-December 2003), Report No 501 (59/18.2/2).

Table 2 presents the total debt estimated in various surveys. It can be seen that the aggregate amount of debt (cash loans incl. debt in kind) in 1981 grew by 19 times to Rs. 1,76,795 crore in nominal terms in 2002. Out of this amount, rural households owe Rs. 1, 11,468 crore in 2002 as against Rs.6,193 crore in 1981. In turn, of the latter, 81,709 crore in 2002 as against Rs. 5,737 crores in 1981.The liability of cultivator household forms about 73.3 per cent in 2002, as against 92.6 per cent in 1981. Non-cultivator households’ share in 1981 at 7.4 per cent has grown to 26.7 per cent by 2002.

In urban areas, the outstanding debt was Rs. 65,327 crore in 2002 against Rs. 3,023 crore in 1981, with self-employed household forming about 37 per cent of the total urban household liabilities in 2002 which was much less than the proportion of 47 per cent in 1981 (Table 2).

Incidence of Indebtedness

The incidence of indebtedness (IOI ) of rural house hold was estimated to be 20.0 per cent in 1981 but thereafter it has risen steadily and gently to 23.4 per cent in 1991 and to 26.5 per cent in 2002. The incidence for cultivator households is 29.7 per cent in 2002 as against 21.8 per cent in 2002 for non-cultivator households.

In case of urban households there is not much difference in IOI between 1981 and 2002.and the same is true as between self-employed and other households (Table 3).

III

Incidence of Indebtedness by Credit Agencies

An institution from which a loan was taken was treated as the credit agency. The credit agencies were either institutional agencies or non-institutional agencies. Various institutional agencies are government, co-operative societies, commercial bank including regional rural banks, insurance, provident fund, financial corporation/institution, financial companies and other institutional agencies. Landlord, agriculturist moneylender, professional moneylender, trader, relatives and friends, doctors, lawyers and others form the non-institutional agencies.

The incidence of indebtedness against institutional and non-institutional credit agencies and the pattern of cash debt against the credit agencies as on June 30, 2002 are given in Table 4 and 5 for rural and urban households.

Table 4 : Incidence of Indebtedness by Credit Agencies
Rural	Cultivator		Non-Cultivator		All Households
	P	S	P	S	P	S
Institutional Agencies	17.0	61.1	8.2	45.9	13.4	57.1
Government	0.8	1.7	0.7	3.8	0.8	2.3
Co-op Society/Bank	9.3	30.2	3.5	19.5	6.9	27.3
Comm.Bank	7.1	26.3	3.6	19.5	5.7	24.5
Insurance	0.1	0.3	0.1	0.2	0.1	0.3
Provident Fund	0.1	0.2	0.1	0.5	0.1	0.3
Financial Cor.etc	0.2	1.7	0.1	1.6	0.2	1.7
Other Institutions	0.3	0.7	0.3	0.8	0.3	0.7
Non-Institutional Agencies	15.7	38.9	15.0	54.1	15.5	42.9
Landlord	0.3	0.9	0.4	1.1	0.4	1.0
Agricultural Money Lender	3.6	9.9	2.8	10.2	3.3	10.0
Professional Money Lender	6.7	16.9	7.1	27.0	6.9	19.6
Traders	1.0	2.6	0.7	2.7	0.9	2.6
Relatives and Friends	3.9	6.2	3.5	9.8	3.7	7.1
Doctors,Lawyers, etc.	0.1	0.4	0.1	0.2	0.1	0.3
Others	0.8	2.0	1.1	3.1	0.9	2.3
All Agencies	29.7	100.0	21.8	100.0	26.5	100.0
Notes: P : Number of household reporting cash loans as on 30.6.2002 per 100 household
S : Per cent distribution of amount of cash loans
Source: See Table 1.

It can be seen from Table 4, the proportion of all rural households reporting indebtedness to institutional agencies was 13.4 per cent while that for non-institutional agencies was 15.5 per cent in 2002. Cultivator house hold indebtedness to institutional agencies was 17.0 per cent and to non-institutional agencies 15.7 per cent in 2002. But that for non-cultivators to non-institutional agencies 15.0 per cent was almost double to that for institutional agencies at 8.2 per cent in 2002.

The institutional agencies accounted for about 57 per cent of total debt of rural households while the debt reported to non-institutional agencies was 43 per cent.

Among institutional agencies co-operative and commercial banks together accounted for 52 per cent and moneylenders (professional and agricultural) lend about 30 per cent among non-institutional agencies.

Share of debt of non-institutional agencies to non-cultivator households are more than that from institutional agencies.

Table 5: Incidence of Indebtedness by Credit Agencies
Urban	Self-Employed		Others		All Households
	P	S	P	S	P	S
Institutional Agencies	8.0	67.2	10.1	79.8	9.3	75.1
Government	0.5	1.7	1.4	11.1	1.0	7.6
Co-op Society/Bank	3.2	22.4	3.9	19.3	3.6	20.5
Comm.Bank	3.6	33.6	2.9	27.4	3.2	29.7
Insurance	0.2	2.1	0.3	4.4	0.3	3.5
Provident Fund	0.0	0.2	1.0	3.0	0.7	2.0
Financial Cor.etc	0.6	5.2	0.9	11.2	0.7	9.0
Other Institutions	0.3	2.1	0.5	3.4	0.4	2.9
Non-Institutional Agencies	10.8	32.8	8.6	20.2	9.4	24.9
Landlord	0.1	0.4	0.1	0.0	0.1	0.2
Agricultural Money Lender	0.3	2.2	0.2	0.2	0.2	0.9
Professional Money Lender	5.7	17.4	4.5	10.7	4.9	13.2
Traders	0.7	1.8	0.3	0.6	0.5	1.0
Relatives and Friends	4.1	8.7	3.3	6.9	3.6	7.6
Doctors,Lawyers, etc.	0.1	0.3	0.1	0.1	0.1	0.1
Others	0.5	2.1	0.6	1.6	0.6	1.8
All Agencies	17.9	100.0	17.8	100.0	17.8	100.0
Notes: P : Number of household reporting cash loans as on 30.6.2002 per 100 household
S : Per cent distribution of amount of cash loans
Source: See Table 1.

In the case of urban household, there is not much difference among institutional and non-institutional agencies, but they owed about 75 per cent of debt to institutional agencies and 25 per cent of debt to non-institutional agencies.

Some important point emerged from the survey, are that among the indebted households most of them are found to be indebted to either to the institutional agencies or non-institutional agencies. The cases of availing credit from both the institutional and non-institutional agencies are not many in both rural and urban areas. In fact it was only 2 per cent in the rural areas and 1 per cent in the urban areas that had reported to avail credit advance from both the agencies. In 2002 the non-institutional agencies played an important role in advancing credit to the households, particularly in rural India as revealed above.

Change in Share of Institutional Credit in Total Cash Debt

Rural household from time immemorial was exploited by traditional moneylenders viz., and other private moneylender like landlord, professional moneylender and agriculture moneylender. Their stronghold was gradually loosening since 1960s and in subsequent years till 2002 institutional agencies making steady inroads into the rural scene. In 1960, about 17 per cent of the cash debt of the households in the rural areas was advanced by institutional agencies. Table 6 reveals the trend in the performance of institutional and non-institutional agencies in extending the credit needs of the rural borrower from 1971 to 2002. Share of institutional credit agencies to rural household which was 29 per cent in 1971 jumped to 61 per cent by 1981 coinciding with the massive rural branch opening by commercial banks after the epoch making nationalization of the 14 banks in 1969 and 7 more banks subsequently in the early eighties The advance to cultivator households by banks increased from a abysmal 2 per cent in 1971 to 29 in 1981 per cent and to 35 per cent in 1991 and in the process ever overshadowing other agencies in the credit delivery scene in rural areas. The share of co-operative societies rose from 22 to 30 per cent between 1971 and 1981 and then fell to 24 per cent in 1991.

During the period the share of non-institutional agencies fell from 68 per cent in 1971 to 37 per cent in 1981 and to 31 per cent in 1991. This data also reveals, though there is mind boggling institutional expansion in the rural credit delivery scene during the period they are not able to break the shackles of money lenders on the poor farmers absolutely as 18 per cent of the cultivator households are still approaching the non-institutional agencies for their credit needs. The decade 1991 to 2002 is an era of liberalization and cutthroat competition for existence. In the process the commercial banks forgot as they need their resources to compete better in urban areas. This can be seen from the fact the share of commercial banks from 35 per cent in 1991 fell drastically to 26 per cent in 2002, though co-op societies increased their share to 30 per cent in 2002 from 24 per cent in 1991. But their effort was not sufficient as the institutional agencies share fell to 61 per cent in 2002 from 66 per cent in 1991. This decline was fully utilized by the moneylenders whose share rose substantially to 27 per cent in 2002 from 18 per cent in 1991.

Table 6 : Distribution of Credit by Credit Agencies
	1971	1981	1991	2002	1981	1991	2002
Credit Agencies	Rural				Urban
	Cultivator Households				Self-Employed
Institutional Agencies	31.7	63.2	66.3	61.1	57.7	67.1	67.2
Government	7.1	3.9	5.7	1.7	8.9	3.1	1.7
Co-op Society/Bank	22.0	29.8	23.6	30.2	15.6	14.5	22.4
Commercial Bank	2.4	28.8	35.2	26.3	31.2	24.7	33.6
Insurance	0.1	0.4	0.2	0.3	1.9	1.3	2.1
Provident Fund	0.1	0.3	0.5	0.2	0.1	0.3	0.2
Other Institutions	0.0	0.0	1.1	2.4	0.0	23.2	7.3
Non-Institutional Agencies	68.3	36.8	30.6	38.9	42.3	30.1	32.8
Landlord	8.1	3.7	3.7	0.9	0.8	0.6	0.4
Agricultural Money Lender	23.0	8.3	6.8	9.9	6.5	1.4	2.2
Professional Money Lender	13.1	7.8	10.7	16.9	9.1	9.9	17.4
Traders	8.4	3.1	2.2	2.6	5.9	3.7	1.8
Relatives and Friends	13.1	8.7	4.6	6.2	14.2	9.8	8.7
Others incl. doctors etc	2.6	5.2	2.6	2.4	5.8	4.6	2.4
	Non-Cultivator Households				Others
Institutional Agencies	10.8	36.7	55.3	45.9	61.8	72.2	79.8
Government	3.4	4.5	7.6	3.8	19.7	16.8	11.1
Co-op Society/Bank	6.0	13.9	14.2	19.5	19.1	19.2	19.3
Commercial Bank	0.8	17.3	27.9	19.5	14.8	19.3	27.4
Insurance	0.2	0.0	0.6	0.2	2.3	1.4	4.4
Provident Fund	0.4	1.0	1.5	0.5	5.9	5.4	3.0
Other Institutions	0.0	0.0	3.4	2.4	0.0	10.1	14.6
Non-Institutional Agencies	89.2	63.3	40.6	54.1	38.2	24.4	20.2
Landlord	12.6	8.4	4.9	1.1	1.1	0.5	0.0
Agricultural Money Lender	23.8	11.4	8.2	10.2	1.2	0.7	0.2
Professional Money Lender	18.7	13.4	9.8	27.0	8.8	8.7	10.7
Traders	10.9	5.8	3.6	2.7	3.8	1.2	0.6
Relatives and Friends	19.0	14.4	8.8	9.8	16.2	9.5	6.9
Others incl. doctors etc	4.2	9.6	5.4	3.3	7.1	3.8	1.7
	All Households				All Households
Institutional Agencies	29.2	61.2	64.0	57.1	59.9	70.0	75.1
Government	6.7	4.0	6.1	2.3	14.6	11.1	7.6
Co-op Society/Bank	20.1	28.6	21.6	27.3	17.5	17.2	20.5
Commercial Bank	2.2	28.0	33.7	24.5	22.5	21.6	29.7
Insurance	0.1	0.3	0.3	0.3	2.1	1.4	3.5
Provident Fund	0.1	0.3	0.7	0.3	3.2	3.3	2.0
Other Institutions	0.0	0.0	1.6	2.4	0.0	15.5	11.9
Non-Institutional Agencies	70.8	38.8	32.7	42.9	40.1	26.8	24.9
Landlord	8.6	4.0	4.0	1.0	1.0	0.6	0.2
Agricultural Money Lender	23.1	8.6	7.1	10.0	3.6	1.0	0.9
Professional Money Lender	13.8	8.3	10.5	19.6	8.9	9.2	13.2
Traders	8.7	3.4	2.5	2.6	4.8	2.2	1.0
Relatives and Friends	13.8	9.0	5.5	7.1	15.2	9.6	7.6
Others incl. doctors etc	2.8	5.5	3.2	2.6	6.6	4.2	1.9
Source: See Table 1

However, urban household witnessed a steady increase in the share of institutional agencies, as it should be if one follows the working of commercial banks in the last decade and in 2002 it amount to 75 per cent of the total credit needs of the urban households.

Assets holding class further strengthen the above findings in the analysis of share of institutional agencies. Table 7 depicts the IOI by institutional and non-institutional agencies in rural and urban areas across assets holding class. The IOI at the lowest strata i.e. less than Rs. 15,000 asset holding class was hardly 3.6 per cent in rural areas by institutional agencies as against 26.7 per cent in the case of asset holding class of Rs 8 lakh and above. This is nearly 7.5 times of the IOI in the lowest AHC and highest AHC.

However, in the case of non-institutional agencies there was not much difference in IOI between the highest and lowest strata of households.

In urban areas the difference between the lowest and highest strata of household is a yawning thirteen times in case of institutional agencies.

Hence, it can be said that the institutional credit agencies which are mainly established to play a dominant role in meeting the credit need of the households especially rural households on an easy terms of contract and thus reduce the burden of heavy interest that the households would otherwise be compelled to bear, unfortunately depicts a sad story as their dominance appears to be miniscule among those who, probably, need their service most.

Table 7: Incidence of Indebtedness by Household Assets Holding Class
Asset	IOI (%) to
Holding	Rural			Urban
Class	Institu-	Non-Insti	All	Institu-	Non-Insti	All
AHC	tional	tutional	Agencies	tional	tutional	Agencies
(Rs.000)	Agencies	Agencies		Agencies	Agencies
< 15	3.6	12.0	15.0	1.4	9.5	10.7
15-30	6.2	13.9	19.0	2.4	12.8	14.8
30-60	8.7	17.7	25.2	4.5	11.0	14.8
60-100	10.9	17.7	26.5	7.2	11.9	18.3
100-150	13.6	17.9	28.9	8.3	12.2	19.7
150-200	14.6	17.1	28.7	8.9	12.0	20.0
200-300	16.2	15.7	28.7	11.1	10.1	19.9
300-450	18.7	13.2	28.7	12.1	8.2	18.7
450-800	22.0	13.0	31.0	16.9	7.2	22.5
>= 800	26.7	10.3	32.9	18.5	4.2	21.4
All	13.4	15.5	26.5	9.3	9.4	17.8
Source: See Table 1

Share of Credit Agencies in Total Cash Dues of the Households

Table 8 further strengthens the above argument. Table 8 depicts the share of the amount of debt from credit agencies for each asset holding class (AHC) at all India level. It reveals that the households of the lower asset group were depending more upon the non-institutional agencies. The share of institutional agencies was only 21 per cent in the AHC of Rs. 15,000 or less as against a whooping 80 per cent in the highest asset group in 2002. This also reveals security oriented commercial mindedness of the institutional agencies especially commercial banks rather than the social needs of the rural advances. The share of non-institutional agencies is exactly opposite with lower strata depend upon non-institutional agencies more and more for their credit needs. Their share in the credit needs being 79 per cent in low asset holding group as against 21 per cent in the Rs. 8 lakh and above asset group.

Table 8: Share of Credit Agencies in Total Cash Dues by Household
Assets Holding Class
Asset
Holding	Rural			Urban
Class	Institu-	Non-Insti	All	Institu-	Non-Insti	All
AHC	tional	tutional	Agencies	tional	tutional	Agencies
(Rs.000)	Agencies	Agencies		Agencies	Agencies
< 15	21	79	100	14	86	100
15-30	29	71	100	16	84	100
30-60	31	69	100	34	66	100
60-100	31	70	100	52	48	100
100-150	39	61	100	48	53	100
150-200	42	58	100	52	99	100
200-300	48	52	100	56	44	100
300-450	59	42	100	69	31	100
450-800	67	33	100	81	20	100
>= 800	80	21	100	90	10	100
All	57	43	100	75	25	100
Source: See Table 1

VII

Debt-Asset Ratio is the relationship between the debt and asset holding. Table 9

presents the same across the different asset holding classes in rural and urban areas.

Though, the same has been discussed in Part I of this note briefly, here it is examined the behaviour of the same in terms of asset holding class and also their behaviour with respect to loans from institutional and non-institutional agencies as it reveals the impact of the burden of debt on the household.

Table reveals that the higher asset classes had higher average debt but they had to bear a lower debt burden. It can also be seen that the debt-asset ratio declined when moves up from low asset holding class to higher asset holding class which means poorer the households their debt burden is more and the richer the household their debt burden is comparatively less.

Table 9 : Amount of Debt and Debt-Asset Ratio by Household Assets Holding Class
Asset	Average	Average Amountof Debt in Rs			Debt-Asset Ratio (DAR) (%)
Holding	Vaueof	(AOD in Rs)
Class	Asset	Institu-	Non-Insti	All	Institu-	Non-Insti	All
AHC	(AVA)	tional	tutional	Agencies	tional	tutional	Agencies
(Rs.000)		Agencies	Agencies		Agencies	Agencies
Rural
< 15	7071	299	1124	1423	4.23	15.90	20.12
15-30	22523	643	1600	2243	2.85	7.10	9.96
30-60	44609	990	2163	3153	2.22	4.85	7.07
60-100	78431	1313	2988	4301	1.67	3.81	5.48
100-150	123412	2075	3224	5299	1.68	2.61	4.29
150-200	173382	2404	3292	5696	1.39	1.90	3.29
200-300	244339	3411	3648	7059	1.40	1.49	2.89
300-450	366134	5770	4087	9857	1.58	1.12	2.69
450-800	591676	10166	4919	15085	1.72	0.83	2.55
>= 800	1668644	26577	6837	33414	1.59	0.41	2.00
All	265606	4302	3237	7539	1.62	1.22	2.84
Urban
< 15	5400	201	1267	1468	3.72	23.46	27.19
15-30	21759	558	2882	3440	2.56	13.25	15.81
30-60	44532	1240	2437	3677	2.78	5.47	8.26
60-100	78981	2294	2117	4411	2.90	2.68	5.58
100-150	123601	2472	2733	5205	2.00	2.21	4.21
150-200	173451	3011	2839	5850	1.74	1.64	3.37
200-300	244921	4840	3844	8684	1.98	1.57	3.55
300-450	369455	7596	3485	11081	2.06	0.94	3.00
450-800	593813	16065	3896	19961	2.71	0.66	3.36
>= 800	1858475	36663	4217	40880	1.97	0.23	2.20
All	417158	8843	2926	11769	2.12	0.70	2.82
Source: See Table 1

The above Table also reveals that the average amount of institutional debt (AOD-Ins) and average value of asset (AVA) systematically increased over AHC. The variable debt asset ratio of institutional agencies (DAR-Ins) also shows a perceptible pattern that decreases with increase in asset holdings of the households. Same is the case with non-institutional agencies, though it is 16 per cent for the poorer meaning the high incidence of debt burden.

1. The value of average amount of debt from non-institutional agencies is higher than that from institutional agencies for the lower asset holding class and reverse is true in the case of higher asset holding class.

2. Value of debt-asset ratio of non-institutional agencies although lower than that of institutional agencies at all-India level, is considerably higher than that of institutional agencies in the low asset holding class, but gradually, reverses its direction as one moves to higher AHC classes.

3. The amount of credit sanctioned to the poor households by Institutional agencies was much below than that sanctioned by non-institutional agencies. This is just opposite and reveals a much favorable condition for richer households.

4. Similarly, the debt burden as revealed by debt-asset ratio. also reiterate that the debt burden of low strata of asset holding class had to bear heavier burden and it decreases as one move along the asset holding class.

VIII

Schemes of Lending

Percentage share of household cash dues arising out of loans advanced by institutional agencies under a number of individual schemes of lending do not show any appreciable value.

In 2002, in rural and urban India, it is seen that certain specific programmes /schemes viz. ‘Prime Minister’s Rozgar Yojana’, ‘Swarnajayanti Gramin Swaeozgar Yojana’, ‘Swrna Jayanti Sahari Rozgar Yojana’ , ‘Advances to minority communities’ and various ‘Self-employment Schemes’ had not become significant means of disbursal of loans to households. The individual shares of these schemes were very negligible at the national level as depicted in Table 10.

Conclusion

(i) Household debt and the number of households involved in indebtedness has been on a rise

(ii) Institutional agencies had steadily increased their share in total household debt from decade to decade up to 1991 in respect of rural households but thereafter this proportion fell

(iii) The most disappointing aspect is the re-emergence of moneylenders during the latter decade as a rising source of household indebtedness; their share in total indebtedness in respect of cultivator households has risen from 18 per cent in 1991 to 27 per cent in 2002; in fact, this deterioration has been steeper in respect of rural non-cultivator households.

(iv) The performances of institutional agencies in respect of urban households has not been so disappointing; in fact, their share has continuously risen.

(v) There is a steady increase in the incidence of indebtedness amongst rural households towards institutional agencies with the increase in size of assets. Contrariwise poorer households have higher share of debt from non-institutional agencies.

(vi) However, among institutional agencies, the performances of co-operative societies has remained firm in the last three or four decades as compared to commercial banks which have chosen to reduce their share on rural indebtedness.

The central government has plans to allow the sugar industry to import 10 lakh tonnes of sugar under the open general licence, thereby lifting the ban on sugar exports, imposed in July 2006. The government has asked the industry to tap the sugar market in the European Union (EU), which is expected to see a fall in domestic sugar production following its decision to drastically reduce subsidy given to the sugar producers in Europe and has suggested to produce raw sugar and collectively bring it to the nearest port for refining, so that the refined sugar can be produced and directly exported to EU countries.

State governments have rejected the recommendation of the national commission on farmers (NCF) to transfer agriculture to the concurrent list of the Constitution to bring it under the direct control of the central government. NCF had suggested inclusion of agriculture in the concurrent list to achieve uniformity in agricultural policies in different states and create a national single market for farm produce. Such a move, according to NCF, could have helped in dealing with the issue of multiplicity and dissimilarities in levies, goods movement restrictions and marketing laws in different states. However, they have endorsed most other recommendations of the commission, including no ban on the export of any agricultural commodity, differential rate of import duty on farm goods, inclusion of livestock products and horticultural products under the minimum support price (MSP) mechanism etc. Several states have stressed the need for setting up of a food and fodder corporation to boost fodder production to meet the growing requirement of the livestock sector and to facilitate further improvement in milk production.

Agriculturists, at the pre-budget meeting with the Finance Minister, have discussed the issues related to crop insurance, irrigation, watershed development, restoration of water bodies, agriculture extension, micro-financing, agriculture marketing and contract farming. Major suggestions given include

Extending a 10-year tax holiday on incomes earned from development of micro-infrastructure, such as for irrigation, under the Bharat Nirman programme of the Central Government.

Framing certain fiscal instruments to ensure that a part of the surplus created by converting land use from agriculture is reinvested in the same area.

Expanding the coverage of existing insurance scheme, keeping the weather insurance premium in the range of not more than 3-5 per cent of the sum assured.

In order to increase the yield, lower the cost of production and improve the quality of tea to get higher prices, the cabinet committee on Economic Affairs (CCEA) has given approval to the special purpose tea fund under the tea board. The scheme is also expected to generate the additional employment to 22 million people per year. The fund is expected to help increase collections of tea cess, sales tax or value added tax, income tax and more.

The Coffee Board has pegged the post-monsoon production of coffee at 2,88,000 tonnes for coffee year (October-September) 2006-07 revising it downward from 3,00,300 tonnes projected in July 2006 owing to incidence of diseases caused by heavy rains. While the post-monsoon estimate for arabica output has been brought down to 99,700 tonnes from 1,03,700 tonnes, the production of robusta is seen at 1,88,300 tonnes, lower than post-blossom forecast of 1,96,600 tonnes. Production in Karnataka, which is the main coffee-growing state, has been revised downward by 8,975 tonne to 2,06,025 tonnes and in Kerala, the post-monsoon forecast of coffee production has been reduced to 59,475 tonne from 61,200 tonne of post- blossom projection. In non-traditional areas such as Andhra Pradesh, Orissa and north-eastern region, overall coffee production is now estimated at 4,275 tonne from 4,400 tonne a few months ago.

Total spices exports as on November 30, 2006 during the current financial year has stood at 2,24,357 tonnes, marginally higher by 0.6 per cent from 2,22,957 tonnes exported in the same period a year ago. However, in terms of value it has posted a significant increase of 29.4 per cent to Rs 2,040.23 crore during the same period. The target set for 2006-07 is 3,06,000 tonnes valued at Rs 2,500 crore. Pepper has been one of the major contributors, export of which has gone up to 16,900 tonnes valued at Rs 165.68 crore (10,383 tonnes worth Rs 87.62 crore) followed by cumin with a record volume of 20,250 tonnes valued at Rs 151.50 crore during April-November compared with 6,026 tonnes valued at Rs 46.69 crore. Increase in the exports of value-added products such as curry powder/paste, mint products and spice oils and oleoresins has contributed around 43 per cent of the total foreign exchange earnings during this period.

The government is likely to cut the budgetary allocation for viability gap funding (VGF) for infrastructure projects to Rs 500 crore in the budget for 2007-08, merely one-third of the current year's allocation of Rs 1,500 crore. The move comes as the demand for funds under this scheme has been rather low since it was introduced in the budget 2003-04 with a provision of Rs 2,000 crore which was subsequently reduced to Rs 1,500 crore in each of the two subsequent years. Since the introduction of VGF, the government has given in-principle approval to 17 proposals under the scheme at an estimated project cost of Rs 3,970 crore. The VGF claim on these projects is only Rs 795 crore as against a total allocation of Rs 5,000 crore in three years.

According to data provided by the ministry of petroleum and natural gas, proven gas reserves as of April 2006 are sufficient to replace only 8 years consumption of crude at 2004-05 levels. Proven reserves of crude, if recoverable at will, would suffice for 6 years and 4 months. Reserves of natural gas have increased by 57 per cent over the past 15 years only because production and consumption were insignificant. With reserves just inching ahead of production and consumption doubling from 57 million tonnes to 120 million tonnes, crude imports have sharply increased. At the end of 2004-05 total consumption, production and (net) imports of crude stand at 120 mt, 34 mt and 86 mt, respectively. An important caveat is that though India has proven reserves for more than six years of consumption, only a small fraction of this is extractable in any given year. This applies even more strongly in the case of natural gas, judging from the rapidly increasing gap between the discovery of natural gas and its extraction.

The government may allow foreign direct investments in the mineral prospecting sector as indicated by the union commerce and industry minister, Mr Kamal Nath. Given the large reserves in coal, iron ore and manganese and the need for huge investments and best technology required the minister said that an FDI limit or a cap are out of question. The government currently allows 100 per cent FDI in mineral exploration and mining under the automatic route. The geological survey of India (GSI) on an average spends about Rs 18.03 crore annually on prospecting and exploration, out of which Rs 7.55 crore is spent on exploration for coal. In addition, expenditure on prospecting of minerals is also incurred by other public sector undertakings and private sector.

The union ministry of coal has approved an interim coal sale policy allowing Coal India Ltd (CIL) to sell its coal to the "linked" core sector as well as to "non-linked" buyers until a model coal sale mechanism is framed by the Supreme Court-appointed committee to replace the existing practice of selling coal through 'e-auctions', which has been held up by the Supreme Court in response to petitions filed by aggrieved consumers. The move has been welcomed particularly in view of the onset of the peak coal demand period on account of the brick-burning season across the country. While coal supplies to core sector-linked consumers will continue as earlier under the interim coal sale policy, non-linked buyers will get their supply of coal at a fixed price through the "e-booking route" on a first-come first-served basis.

Cement prices are on the rise due to a tight demand-supply mismatch. Prices in Mumbai have risen by Rs 5-10 to Rs 235-240 per 50 kg bag and are expected to go up further by Rs 15-20 to Rs 260 per bag, as per analysts. Demand for the commodity during the fourth quarter of the financial year 2007 is expected at around 44 million tonnes against a supply of 42 million tonnes. This is despite massive investments going into capacity build-up cement companies since capacity additions would be realised only in the last quarter of the financial year 2008. Between April and November 2006, northern India has seen demand rising by 13 per cent, the southern parts of the country by 11 per cent, the western region by 8 per cent and the eastern states by 6 per cent. In financial year 2008, northern India is expecting a demand of 50 million tonnes against a total capacity of 46 million tonnes while in the south the capacity will be at 56 million tonnes against a demand of 47 million tonnes. The west will have excess capacity at 51 million tonnes against the demand of 40 million tonnes, while in the east, the demand will be 28 million tonnes against a capacity of 26 million tonnes. An Edelweiss research report states that the average earnings before interest, tax, depreciation and amortisation (EBITDA) of the five leading cement companies will go up by Rs 193 per tonne to Rs 1,186 by April-June 2007 from the level of Rs 993 per tonne in the first quarter of financial year 2007. Government purchases, which constitute around 10-15 per cent of the total demand, are at a concession of 5 per cent.

The annual point-to-point inflation rate based on wholesale price index (WPI) rose by 5.43 percent for the week ended December 16,2006 as compared to 5.32 per cent in the last week or at a lower rate of 4.62 per cent during the corresponding week last year.

During the week under review, the WPI rose to 207.8 from 207.7 in the previous weeks’ level (Base: 1993-94=100). The index of ‘primary articles’ group, (weight 22.02 per cent), declined by 0.1 percent to 211.8 from its previous week’s level of 212.1, mainly due to fall in prices of ‘food article like fruits and vegetables and eggs. The index of ‘fuel, power, light and lubricants’ group (weight 14.23 per cent) remained unchanged at 322.6. The index of ‘manufactured products’ group rose by 0.2 per cent to 180.8 from 180.5 during the week under review. The higher prices of food products like black tea,salt,and gur pushed up the prices of manufactured products.

The latest final index of WPI for the week ended October 21,2006 has been revised upwards; as a result both, the absolute index and the implied inflation rate stood at 208.8 and 5.61 per cent as against their provisional levels of 208.4 and 5.41 per cent, respectively.

Punjab National Bank (PNB) and UTI have hiked benchmark lending rates. While PNB raised the rates by 0.25 per cent to 11.75 per cent, UTI Bank has hiked prime lending rate by 0.50 basis points to 13.5 per cent. Banks including SBI, ICICI, HDFC Bank and Centurion Bank of Punjab have hiked their prime lending rates after the central bank announced 50 basis points hike in bank’s cash reserve ratio to 5.5 per cent.

The banking sector was the largest provider of the source of external finance for the Non-Banking Finance Companies (NBFCs) in 2005-06. Financing from banks to the NBFC sector, which also includes housing finance companies accounted for 38.2 per cent of the sector. Funds raised through debentures and bonds accounted for 31.2 per cent of the total funds employed by the NBFC sector. Among other sources of external finance, the financial institutions (FIs) and resources mobilised through fixed deposits (FDs) accounted for 9.2 and 9.3 per cent respectively. Around 46 NBFCs showed an increase in the ratio of borrowings as percentage of capital employed in the year 2005-06 against the previous years figures.

RBI has announced relief measures for debt-stress farmers in AP, Karnataka and Kerala. For mitigating the distress farmers in the 25 districts of these three states the Union Government has approved a package which, besides other items, has a component relating to agriculture credit.

SBI has moved its non-performing loans (NPL) from its branches to the newly created Stressed Asset Resolution Centre (SARC) in Pune. The specilaised team at the dedicated SARC will now handle all NPLs rehabilitation and recovery. As a result, now the branches need not worry about NPLs. This is the second such centre in the Mumbai circle, which covers Maharashtra and Goa with an asset base of Rs 25,000 crore. SBI’s target is to bring gross non-performing assets to below 4 per cent and the net level to below 1 per cent.

HSBC’s India credit card division crossed the 20 lakh credit card mark with the last 5 lakh cards being subscribed in the last 5 months.

Autoline Industries Ltd. Is to tap the market between January 8, 2007 and January 12, 2007 by offering shares in a price band of Rs 200-225 per share of face value of Rs 10 each.

The market rallied during the week, as buying for index pivotal resumed, after a sharp fall on the back of a surprise hike in CRR announced on 8 December 2006, after completion of trading. The BSE Sensex advanced 315.17 points for the week ended Friday (29 December 2006) to 13,786.91, while the S&P CNX Nifty rose 95.25 to settle at 3,966.40. The market was closed on 25 December 2006 on account of Christmas. The Sensex surged 236.60 points on 26 December 2006, to settle at 13,708.34, on strong buying in IT scrips anticipating robust December quarter results. The Sensex gained a further 151.35 points to end at 13,859.69, on 27 December 2006, on account of short-covering ahead of the December futures contracts expiry (28 December 2006). On 28 December 2006, the BSE Sensex slipped 13.35 points to 13,846.34, amid volatility at the close, due to expiry of December 2006 derivatives contracts. The Sensex declined 59.43 points to 13,786.91, in late-trading on 29 December 2006, under selling pressure.

The Reserve Bank of India permitted foreign investment up to 49 per cent in stock exchanges, paving the way for New York Stock Exchange (NYSE) to expand into Asia 's best performer.

The Reserve Bank of India also said that foreigners could hold up to 49 per cent in depositories and clearing corporations.

Under the new rules, foreign direct investment will be limited at 26 per cent, while foreign portfolio investments will be capped at 23 per cent in all such entities, the central bank said. It, however, said portfolio investments would be allowed only through the secondary market. The stock exchange also plans to list shares on its own trading floor.

FIIs were net sellers of index and stock futures while they covered their position by buying index options. On account of expiry of December contracts, FII’s open interest in F&O declined by Rs 7,500 crore to Rs 26,600 crore.

Nifty put-call ratio stood at 1.59 on December 29 compared with 1.24 on December 22.

Nifty futures were traded at premium to nifty spot, for the first time in the last three weeks. The premium was modest at 1.6 points on December 29, indicating lack of support from bulls.

Under the weekly T-Bill auctions, the RBI mopped up Rs.2830.25 crore and Rs.510 crore through 91-day T-Bill and 182-day T-Bill. From this, the RBI raised Rs.130.25 crore and Rs.10 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 7.1858 per cent and 7.2954 per cent respectively. The cut-off yield in 182-day T-Bill auction also moved higher to 7.2954 per cent as against the previous cutoff yield of 7.2523 per cent.

Call rates during the period ranged between 11.23 per cent and 16.86 per cent, while repo rates ranged between 8.83 per cent and 14.88 per cent and the CBLO rates ranged between 8.30 per cent and 12.78 per cent. The daily average outstanding amounts in the LAF (reverse repo) operations conducted during the period were Rs.709 crore vis-à-vis Rs.11,115.52 crore and Rs.14,874.45 crore for CBLO and Call market respectively. During the week, the RBI received daily average subscription of Rs.25,279 crore for LAF (repo) operations.

The weighted average YTM of G.S 2016 7.59 per cent bond was 7.6239 per cent on December 29, 2006 as compared to 7.596 per cent on December 22,2006. The 1-10 year YTM spreads increased by 1 bps to 39bps.

Rural Electrification Corporation tapped the market to mobilise Rs 1000 crore (Rs 500 crore as green

According to the RBI's 'Sources of Accretion to Foreign Exchange Reserves', the major sources of accretion to foreign exchange reserves during the first half of 2006-07 have been foreign investment, external commercial borrowing (ECB) and banking capital. Taking into account the valuation gain of US$5.1 billion, foreign exchange reserves recorded an increase of US$13.7 billion during April-September 2006-07 (an increase of US$1.5 billion during April-September

The rupee closed at Rs.44.23/USD on December 29,2006 as compared with Rs. 44.59/USD as on

December 22, 2006. The six-month forward premia closed at 3.60 per cent (annualized) on Dec 29, 2006 vis-à-vis 3.69 per cent on Dec 22, 2006.

Cumin seeds prices remained volatile in the last two days owing to anticipation of low output in February on the eve of new crop arrivals. The price of cumin seeds for February delivery closed at Rs 8,166 a quintal on Wednesday on the MCX, down by 0.57 per cent from the previous day’s close of Rs 8,213. The price of the near-month contract on the MCX too dropped by 0.45 per cent from Rs 8,062 on Tuesday to Rs 8,025 on Wednesday. The fall in prices on Wednesday is mainly attributed to profit booking by traders. The sudden spurt in prices on Tuesday is believed to have been triggered by the reports of a shortfall in the crop output as a result of fog in Saurashtra, which is set to hit the crop this year. Farmers are also anticipating rains in the region, which may result in a 20 per cent crop loss.

According to data released by the market regulator Securities and Exchange Board of India (Sebi), the total value of deals struck in 2006 is Rs 2,958 crore higher than that of 2005. The value of takeovers in the domestic market was up by 55 per cent from Rs 5,344 crore in 2005 to Rs 8,302 crore in 2006. The fact that the number of deals during the two years was the same, 69, indicated that deal sizes are now larger.

*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.

Part 11A

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