Current Economic Statistics and Review For the Week 
Ended January 26, 2007 (4^th Weekly Report of 2007)

Theme of the week:

Non-Conventional Renewable Energy Sources

“For meeting the development targets of India our power generation capacity has to increase to 400,000 Megawatts by 2030 from the existing 130,000 Megawatts of power… The strategic goals for Energy Independence by 2030 would call for a shift in the structure of energy sources… Maximum hydro and nuclear power potential should be utilized… the power generated through renewable energy technologies has to be increased to 25 per cent against the present 5 per cent... for true Energy Independence, a major shift in the structure of energy sources from fossil to renewable energy sources is mandated.”[1]

The power sector is often identified as the single most crucial growth driving sector of an economy. The power requirements of a country share a non-linear relationship with GDP growth (an elasticity factor of much above 1). ‘A 7 per cent rise in GDP warrants a 10 per cent rise in power capacity to maintain the status quo in terms of the country’s current shortage. Additionally, to bridge the shortage, as well, the rate of growth would have to be much higher for the next ten years.’[2] Though the pace of electricity generation has improved in recent months as compared to a growth  of around 5 per cent over the last few years, substantial augmentation of generating capacity is called for if the aspiration of a double-digit GDP growth is to be realised. The need for accelerated growth in power generation coupled with environmental considerations has brought into focus the use of renewable sources of energy generation.

Conventional Sources of Energy

India , traditionally, generated electricity from two sources, viz. hydro and thermal (comprising diesel, gas and steam) based on fossil fuels, now termed as conventional sources of energy. Broadly, oil, gas, coal, hydro and nuclear power are classified as commercial sources of energy. The share of hydel plants, which was above 40 per cent till the eighties, has gradually come down to around 25 per cent in the present times, while, conversely, the dependence on thermal plants has progressively risen from around 50 per cent to nearly above 70 per cent. The increasing dependence on fossil fuels for energy generation has several drawbacks, the depleting and eventually exhaustible nature of fossil fuels, the country’s dependence on imports of fuel and the resultant susceptibility to oil price fluctuations in international markets, the polluting nature of thermal power plants, to name a few.

Nuclear Power Generation

Nuclear energy which began to be used for power generation in 1970 remains practically unexploited till date due to geo-political issues, alleged safety and environmental concerns as well as serious worries on its cost effectiveness. The development of nuclear power for achieving energy independence by the country remains a contentious issue with as many lobbies opposing as it has supporters. The opposition is largely based on ecological grounds with reference to the management of radioactive wastes. While, on one hand, enthusiasts claim that nuclear technology offers a cheap and safe way for generating power, several critics argue otherwise. They point that India is not paying heed to lessons from countries like the USA , Sweden and Germany that are phasing out their nuclear power plants on environmental considerations. There are also a number of civil activists who are ideologically opposed to nuclear power because it is inextricably linked with the nuclear weapons programme.

Indian policy makers are actively promoting the development of nuclear power generation. A planning commission report estimates that the share of nuclear plants, which currently have a share of 1 per cent in the total installed capacity in India would contribute 8 per cent by 2031. The recent Indo-US civil nuclear deal is expected to soothe the fuel shortage faced by nuclear plants. The agreement could also help India import new technologies such as advanced heavy water reactor and light water reactor. Currently, the nuclear programme is at a crucial stage moving from the pressurised heavy water reactor (PHWR) technology to the fast breeder technology by 2010. The fast breeder reactors will recycle spent fuel from the earlier PHWR cycle, and by using thorium as blanket material, will produce fuel for the third stage of the programme.

Non-Conventional Renewable Energy Sources

It was in the early seventies that the importance of harnessing renewable energy sources for power generation in the transition to a sustainable energy base was recognised in India . Renewable sources cover a vast gamut of untapped natural resources which could be exploited to produce electricity in an environmentally friendly manner. IEA (International Energy Association) defines modern renewables as bio fuels, wind, solar, mini-hydro, marine and geothermal energy. These were initially viewed as non-commercial sources of energy. It is recognised that while it may not be possible to substitute conventional energy sources with renewable energy sources, the latter can potentially go a long way to supplement energy supply efforts along with addressing ecological concerns. In the early period, though wind-based generation was initiated, it remained nascent for a few decades. It was in 1992 that the ministry of non-conventional energy sources[3] was set-up which adopted special focus on programmes for power generation using various sources of renewable energy and it began to enjoy budgetary allocation for carrying out these programmes. Yet, the share of these resources in the overall power sector remains miniscule – just 1-3.2 per cent as detailed below.

Current Scenario in the Power Sector

Though renewable energy sources are began to be used in small measures there is a long way ahead given both the country’s requirements and aspirations and the potential of these sources. At the end of the financial year 2005, the break-up of shares of various energy sources is presented in Chart 1, which marks the share of RES (renewable energy sources, including wind, biomass, biomass gassifier, and urban and industrial wastes) at a miniscule 0.7 per cent or 831.31 MW (megawatts) of the total installed capacity of 118425.7 MW. Non-conventional energy sources which include wind power apart from RES, add up to a share of 3.2 per cent. Annexure 1 gives details of installed capacity under various renewable energy sources across states under various government and private ownership categories.

Developments in Major Renewable Energy Programmes

The MNES (or MNRE now) has undertaken numerous programmes for the promotion of renewable sources. Annexure 2 enumerates estimated medium-term potential and cumulative achievements of renewable energy sources as provided by the ministry. We undertake a brief review of the progress under various programmes for development of renewable energy resources:

1.Wind Power Programme

India now has the fifth largest wind power installed capacity in the world, after Germany , United States , Denmark and Spain . It has a total of 1,870 MW of installed capacity for wind power, of which about 1,805 MW has come through commercial projects reflecting heavy investor interest in these projects. Currently, wind power projects supply around 11.8 billion units of electricity to various state grids. The estimated gross wind power potential has been revised upwards to 45,000 MW from 20,000 MW anticipated earlier in view of technological advances and availability of more modern equipments.

2.Small Hydro Power Projects

The small hydro projects are a critical area for power generation from renewables to help improve the overall energy scenario of the country and in particular for remote and inaccessible areas. The ministry has been encouraging development of small hydro projects in the state sector as well as through private sector participation.

The estimated potential of small hydro projects is about 15,000 MW. The last decade has seen a four-fold increase in the capacity of small hydro projects up to 3 MW from 63 MW to 240 MW. Additionally, about 420 small hydro power projects up to 25 MW station capacity with an aggregate capacity of over 1,423 MW have been set and over 187 projects in this range with aggregate capacity of 521 MW are under construction.

3.Biomass Power Programme

The biomass resources, including crop residues and agro-industrial wastes, provide a source of non-conventional energy for industries through biomass gasification technology. The industrial sector consumes approximately 35 per cent of total electricity generated in the country and demands for high quality, stable power supply to attain the higher growth rate projected for this sector. A majority of industries in India requires both electrical and thermal energy and biomass fuels provide efficient for meeting these requirements, often partially if not fully. The power programmes using biomass fuels fall under two broad categories.

Biomass Power/Cogeneration (Non-Bagasse) Programme

Several industries, such as sugar, paper and pulp, textiles, fertilisers, petroleum, petrochemicals and food processing, etc. require electrical as well as thermal energy for their operations. These requirements can either be met through different energy sources or from a single source which is capable of generating electricity as well as producing thermal energy. Simultaneous production of power and thermal energy from a single fuel source is termed as co-generation. The power generated from such co-generation plants can be used for meeting the captive requirements and the surplus power produced can be exported to the grid.

The MNES has notified a scheme on biomass energy and co-generation (non-bagasse) in industry with provisions for financial assistance from the central government. India is the largest producer of cane sugar and the ministry is implementing the world’s largest co-generation programme in the sugar mills; the installation of a capacity of 537 MW has so far been commissioned and another 536 MW is under installation. There exists an established potential of 3,500 MW of power generation through bagasse-based co-generation in sugar mills.

Biomass Gasifier Programmes

In the area of small-scale biomass gasification, significant technological development has made India a world leader in the field. A total biomass gasifier installation capacity of a little over 55 MW has so far been installed, mainly for stand-alone applications. A 5 x 100 KW (kilowatt) biomass gasifier installation on Gosaba Island in Sunderbans area of West Bengal is being successfully run on a commercial basis to provide electricity to the inhabitants of the island through a local grid of 4 x 250 KW (1 MW) project has recently been commissioned at Khtrichera, Tripura for village electrification. Indigenously developed small biomass gasifiers have been approved after stringent testing of international standards and are now being exported not only to developing countries of Asia and Latin America but also to Europe and USA .

4.Solar Power Programme

Most renewable sources of energy, such as wind, hydro power, biomass, ocean energy, are the indirect forms of solar energy. The direct exploitation of the widely and freely available, environment friendly and virtually inexhaustible resource of solar energy is undoubtedly an attractive proposition. India has one of the world's largest programmes in solar energy given its endowment of 300 clear sunny days in a year; the country receives solar energy equivalent of over 5,000 trillion kWh (kilowatt hours) per year, which is far more than the total energy consumption of the country and the daily average of incident solar energy ranges between 4-7 kWh/m2 depending upon the location. The MNES is implementing countrywide schemes on solar thermal energy programme and solar photovoltaic power programme.

Solar Thermal Power Programme

Solar thermal energy refers to the utilisation of solar energy by capturing available solar radiation and transferring it as heat to be applied to perform various useful activities, like, heating, cooling, drying, water purification, industrial process heat and power generation. This technology route also includes solar architecture, which finds utility in designing and construction of energy efficient buildings. The solar thermal power generation potential is estimated at 35 MW per square kilometer.

Solar Photovoltaic Power Programme

Solar photovoltaic (PV) technologies offer a unique, decentralised option for providing electricity locally at the point of use. The country-wide solar photovoltaic programme is aimed at developing the cost effective PV technology and its applications for large-scale diffusion in different sectors, especially in rural and remote areas. The programmes of MNES cover PV systems for solar street lighting systems, solar lanterns, solar home lighting systems/solar home systems, stand-alone PV power plants; solar PV water pumping systems and a few others. PV systems of about 245 MWp aggregate capacity (about 13,00,000 systems) have been installed till December 2005, for various applications including export of about 160 MWp aggregate capacity of PV products.

Additionally, there are separate programmes intended towards urban and rural energy generation using renewable resources. This is because given their unique demographic characteristics, like population concentrations in urban conglomerations as against dispersed populations in rural areas, these areas deserve attention in distinct forms. Also the schemes in rural versus urban areas would depend on the nature of bio-fuels available in these areas.

5.Urban Energy Programmes

Urban energy programmes are aimed at mitigating the energy problems of cities and providing alternative energy solutions for industrial and commercial establishments.

Energy Recovery from Urban Wastes

The increasing quantities of urban wastes resulting from rapid urbanisation and changes in the lifestyle patterns which accompany economic growth are beginning to threaten urban environment. To use this waste for energy generation has a two-fold benefit of waste disposal along with supporting the decentralised energy generation programme of the country.  According to a recent estimate, about 42 million tonnes of solid waste (1.15 lakh tonnes per day) and 6,000 million cubic metres of liquid waste are generated every year by India ’s urban populace which translates to a potential for generation of over 1,700 MW of power from urban wastes in the country.

Energy Recovery from Industrial and Commercial Wastes

Concomitantly, high paced industrialisation results in the generation of huge quantity of wastes, both solid and liquid, in the industries like sugar, pulp and paper, fruit and food processing, sago/starch, distilleries, dairies, tanneries, slaughterhouses, poultries, etc. The estimated potential for recovery of energy/generation of power from solid and liquid wastes being generated in various industrial units is expected to increase to about 1,300 MW by 2007, 1,600 MW by 2012 and 2,000 MW by the 2017. Several initiatives for the development of effective waste-to-energy systems have been taken up in the country; a total of 21 projects for energy recovery from a variety of industrial wastes with an aggregate capacity of about 27 MWeq (megawatt equivalent) have been installed as on 31^st August 2005.

6.Rural Energy Programmes

While for dense urban population masses, centralised generation/production of energy followed by transmission/transport makes eminent sense, this approach tends to be prohibitively costly and inefficient for dispersed residents presenting remote, scattered and low loads which inevitably lead to greater transmission and distribution losses. Beyond certain breakeven distances from the grids/transport systems associated with centralised generation/production, it appears to be more cost-effective to implement decentralised village-scale generation/production coupled to local mini-grids like in the compact villages of India . Two important programmes under rural energy development have been discussed here.

Biogas Development

The national project on biogas development was started in l981-82 with the objectives of providing fuel to rural households for cooking purpose, organic manure for application in agricultural fields, mitigating the drudgery of rural women, reducing the pressure on forests, recycling human waste by linking toilets with biogas plants and thereby improving sanitation. Indigenously developed models of biogas plants, namely floating drum type and fixed dome type are being gradually popularised. The programmes are provided for by central financial assistance, including central subsidy, turn-key job fee, service charges, staff support, training and publicity support, etc.

Integrated Rural Energy Programme (IREP)

The most comprehensive rural programme IREP aims at developing capabilities at the micro-level for planning and implementation of area-based energy plans and projects and meeting energy needs of rural population for productive and subsistence needs. The programme has two components, viz. the central sector and the state sector; the former includes centrally sponsored scheme (CSS) for developing capabilities in the states and union territories for preparing and implementing integrated rural energy plans and projects while state sector outlay is utilised for implementation of the IREP plan and projects including funding of demonstration activities, provision of financial incentives for various energy devices, providing funds for extension and other related activities for the implementation of the plan.

Project Costs of Renewable Power Sources

The cost estimates for setting up power plants based on renewable energy sources as provided by the MNES are presented in Table 3. While these costs might appear slightly higher than those involved in thermal generation (approximately Rs 2-3 per kWh), it is argued that if environmental and social benefits offered by the projects are considered then these projects compare favorably with conventional power projects. Also, cost of thermal projects are subject to vagaries of oil prices in international markets which given their current upward spiral strengthens the argument in support of renewable sources. 

Renewable Energy Sources in the Plans (Ninth and Tenth)

The Ninth Plan (1997-2002) undertook to restructure the then existing renewable energy programmes towards gradual commercialisation for which purpose socially-oriented programmes were restructured so as to reduce the direct capital subsidy to such projects as provided by the government. The Tenth Plan (2002-2007) carried on this process by including various incentives such as a interest subsidy instead of a capital subsidy. Further, the plan encourages private sector investments by promoting a bidding process for available subsidies with the entrepreneurs providing maximum benefit at the lowest amount of subsidies being awarded the contracts. Recently, venture capitalists have been looking beyond their traditional businesses to invest increasing sums of money in alternative energy companies.

Table 1 summarises the likely physical achievements of renewable energy programmes as against the targets set under the Tenth Plan. While achievement in wind power has already exceeded its target in the first three years of the plan period, some other areas, like solar power, are expected to witness shortfalls. The mid-term review reasons out that the undue delay in commissioning the 140 MW integrated solar combine cycle power plant in Rajasthan due to contentions on its viability and availability of gas would make the targets for solar generation plants unachievable.

On the financial front, data on budgetary support during the Ninth Plan and the first four years of the Tenth Plan highlight the large amount of unutilised funds by the ministry of non-conventional energy sources (Table 2). While utilisation of the total GBS (gross budgetary support) and IEBR (internal and extra budgetary resources) for renewable energy sources at the end of the Ninth Plan was a little over 65 per cent at Rs 4869.74 crore, the amount utilised by the end of the Tenth Plan estimated at Rs 3426.11 crore would be even lower than half the amount allocated. The gross underutilisation of funds has been blamed on lack of co-ordination among several ministries that have to concur before grants are allocated or released for this ministry and its programmes and the fact that there is less than allocated utilisation of grants on many programmes[4].

Summing Up

Energy security is a prime concern for any economy and India is no exception. This is especially true in the backdrop of the current oil price scenario and India ’s dependence of fossil fuel imports. Given the contentious scenario on nuclear power, renewable energy sources are critical to the growth of the power sector by supplementing the traditional generation. Of the several renewable energy sources, wind power shows the greatest potential. Modern renewables like small wind turbines, photovoltaic cells, small scale of mini hydels are economical for distant village where grid power can be very expensive. Solar thermal technologies are competitive enough without any subsidies and have been used for several years by residential and industrial end-users. Marine energy sources like tidal forces, ocean currents, wave power and thermal gradients have yet to be developed.

Over the years, MNES has made considerable progress in promoting an interest in non-conventional energy resources. It has demonstrated that alternative sources with all their advantages can satisfy a significant proportion of the growing demand for power. But it is equally evident that the ministry, whose allocation is a fraction (18 per cent) of the huge allocations for the power ministry, has a long way to go.

(* This note has been prepared by Nilopa Shah.)

References

Bose, Deb Kumar (2000): ‘Decline of Nuclear Power’, EPW, June 10-16

Cover Story (2006): ‘Alternative Energy: End of Oil Age?’, The Analyst, August

Editorial (2002): ‘Power: Underutilising Alternatives’, EPW, August 31

Editorial (2006): ‘Thermonuclear Way Out of Crisis’, Indian Express, November 22

GoI (2002): ‘Tenth Five-Year Plan (2002-07)’, Volume II, Planning Commission

GoI (2005): ‘Mid Term Appraisal of the Tenth Five-Year Plan (2002-07)’, Planning

Commission, June

GoI (2006): ‘Annual Report 2005-06’, Ministry of Renewable Energy Sources

GoI (2006): ‘Energy Independence ’, Inaugural Speech, President APJ Abdul, South Asian

Conference on Renewable Energy, New Delhi , April 18

Ministry of Renewable Energy Resources (www.mnes.nic.in)

Reddy, Amulya K N (1999): ‘Goals, strategies and Policies for Rural Energy’, EPW,

December 4

Sharma, Vinod (2006): ‘Making Power While the Sun Shines’, Business Standard, Nov 25

Highlights of  Current Economic Scene

AGRICULTURE  

In order to curb the rising prices of maize, the central government has reduced the import duty on maize to zero from the existing 60 per cent and this zero duty regime would be applicable only for calendar 2007. In the past one-year, prices of maize have shot up from Rs 600 per quintal to Rs 750 in the domestic market. Doing away with the import duty would provide relief to starch manufacturers and poultry industry, the two major consumers of maize.

Exports of black pepper have achieved the export target set for the current financial year 2006-07 during the first nine months between April and December 2006. Higher price in the international market and export subsidy scheme announced in October 2005 have triggered this upsurge in exports with exports touching to 20,000 tonnes, 65 per cent higher over the corresponding period of last year. Total export earnings have stood at Rs 203.53 crore, 20 per cent higher than the target of Rs 170 crore. The exports of spices, as a whole, have posted an increase of 31 per cent in terms of value. Total exports were 2.5 lakh tonne worth Rs 2,335.24 crore compared to 2.5 lakh tonne worth Rs 1,781.8 crore during the same period last year.

According to provisional estimate of Rubber Board of India, natural rubber imports in the country have stood at 47,193 tonnes, 14 per cent higher compared with same period a year ago, surpassing the projection of 45,000 tonnes for 2006-07 (April-March) on account of domestic rates staying higher than global prices since October 2006. Automotive Tyre Manufacturers Association, an apex body of tyre makers, has projected 30,000 tonnes rubber imports during January-February 2007.

As per the provisional estimates of Marine Products Export Development Authority (Mpeda), marine products’ exports from the county has posted an 8.03 per cent rise in value and 3.8 per cent increase in quantity, during the first nine months of this fiscal. A total 4,10,983 tonnes of seafood, worth Rs 6,055.39 crore has been exported as against 3,95,911 tonnes worth Rs 5,605.5 crore exports attained during the same period last year.

Gujarat State Civil Supplies Department has put a limit on wheat stock held by retailers, wholesalers and flourmill owners in the state at 3,000 quintal per month, except exempted firms like Gujarat State Civil Supplies Corporation itself and Public Distribution System of the state. The notification will come into effect at the end of January, around the time of arrival of new wheat crop in the market. The firms and other industry players procuring wheat have to declare their stocks to the department.

The country has plans to export10 containers of eggs (4.75 lakh eggs / container) per week to the UAE from first week of February 2007 after a gap of nearly one year. India declared itself free from bird-flu in August 2006, after which many countries lifted ban on the imports of eggs from India except UAE, which has been the major importer of Indian eggs.

The finance ministry has reduced the basic custom duties on vegetable oils and has decided to keep the tariff values — the base prices on which duties are computed — on palm oils frozen at their end-July 2006 levels. As per the Revenue Department's notification, the basic custom duty on CPO, crude palmolein and other fractions of CPO has been slashed from 70 to 60 per cent. In case of RBD palm oil, RBD palmolein and other refined palm oils, it has been reduced from 80 to 67.5 per cent. For crude sunflower oil the duty has been cut from 75 to 65 per cent and that for refined sunflower oils from 85 to 75 per cent.

The World Bank has announced $485 million in assistance to Tamil Nadu to modernise the state’s irrigation infrastructure. Of the total loan corpus, $335 million will be routed through the International Bank for Reconstruction and Development (IBRD) while $150 million in credit will be provided by the International Development Association (IDA). The scheme seeks to synergise the work of agencies involved in irrigation with multiple activities like on-farm development, horticulture, agriculture, marketing, livestock, fisheries and applied research. The project would aim to improve productivity of water in irrigated agriculture and promote diversification into higher-value, less-intensive crops. Special focus will be placed on modernisation of tanks and strengthening of Water Resources Organisation and Water Users Organisation to improve irrigation service delivery.

Infrastructure

Power

The power sector requires investments to the tune of $ 100 billion for improving generation capacity and augmenting the accompanying transmission and distribution networks during the 11^th Plan period according to a senior government official. Of the total amount, about $ 50 billion would be needed only for raising the generation capacity, nearly $ 30 billion to ramp up the country's transmission capacity and around $ 20 billion for the rural electrification programme and the distribution sector.

Petroleum, Petroleum Products and Natural Gas

In December 2006, crude oil output of the country has risen by 10.6 per cent; however, natural gas output has fallen by 1 per cent to 2.7 billion cubic metre (BCM). During the first nine months of the current fiscal year, crude output has totalled 25.5 million tonnes, 6 per cent higher than the 24 mt produced in the corresponding period a year earlier. Output from the Mumbai High fields, accounting for more than half of India 's annual oil production has risen by 22 per cent to156 mt in December. The crude oil production by private companies such as Cairn Energy Plc has risen 8.3 per cent to 429 thousand tonnes in December, up from 396 thousand tonnes during the same period last year. Refiners like state-owned Indian Oil Corporation and private sector major Reliance Industries Ltd have processed 2.3 mt of crude oil into fuel in December on back of rising demand, 6.1 per cent higher than the same month a year earlier.

Cement

The government's move to scrap import duty on cement may not have any impact on the retail prices of domestic cement as per industry sources who rationale that the high logistics cost makes it unviable for users to import cement. They add that though bulk users may consider importing cement from Thailand and Indonesia but again the cost might not be competitive. Some opine that there could be a marginal price advantage of Rs 5-10 per bag in the coastal areas but in the landlocked Indian states, freight costs will drive up the price of imported cement to domestic levels. Additionally, India does not have adequate facilities to import large quantities of cement and is not considered a very attractive market for cement exporters.

Banking

The President has approved a Bill to amend the Banking Regulation Act. The Bill gives the RBI flexibility to lower the floor on mandatory statutory liquidity ratio (SLR) investments, currently set at 25 per cent. The mandatory percentage of deposits banks must hold in government bonds.

HDFC has recorded 25 per cent growth in net profit for the quarter ended December 31, 2006 to Rs 355 crore, against Rs 285 crore in the corresponding quarter lat year. For the nine-month period ended December 31, 2006 the company’s net profit jumped 23 per cent to Rs 1020 crore against Rs 831 crore in the same period last year.

Bank of Maharashtra has posted 178 per cent increase in the net profit for the October-December quarter as the profit reached Rs 74.32 crore compared with Rs 26.75 crore in the same period last year.

Financial Markets

Capital Markets

Primary Market

Redington ( India ) Ltd tapped the market between January 22 and 25 by offering shares of Rs 10 each in a price band of Rs 95-113 per share.

Secondary Market

The BSE sensex gained 100.01 points or 0.70 per cent over the week to close at 14282.72. The Nifty closed at 4147.70, up 57.55 points over its close last Friday. The Sensex and the Nifty both closed at their historic all time highs. On Monday, the Sensex advanced 26.53 points (0.19 per cent), to close at 14,209.24. On Tuesday, cement stocks witnessed sharp falls after the centre relaxed import duties across all varieties of cement except white cement. Correction in banking sector stocks also added to the downward pressure on both the indices. There was also some significant squaring of long positions in the derivatives segment on the day ahead of expiry. The 30-shares BSE Sensex lost 168 points (1.18 per cent), to end at 14,041.24. Wednesday proved to be some breather as firm global markets, short covering in derivatives and a surge in FII buying helped the market recover after Tuesday’s 168-point fall. The sensex closed the day 69.22 points higher to settle at 14110.46. On Thursday came a pronounced rise for the market amidst the derivatives expiry for the month. The sensex surged 172.26 points on the day to close at 14282.72 while the Nifty put up 57.80 points closing at 4147.70. The Sensex also touched an intra-day high of 14,307.19. Thursday was the last trading day of the week with Friday being an off on account of Republic Day.

FIIs have taken a tepid approach towards Indian equity in the first two weeks of January. There have been net FII outflows to the tune of Rs 552 crore between January 1 and January 15. A study of net FII inflows into India from 2001 onwards shows that inflows have always been positive in the January 1-15 period. Even in a year like 2001, when the preceding year saw the great technology-led slide in stock markets, FIIs had taken an optimistic view in the beginning of the following year. The cautious approach being taken by FIIs this time around can be attributed to two factors. The unrelenting bull run in the markets since 2003, which has led the sensex to appreciate by 388 per cent, and the relatively stretched valuations of the markets could have been the reason behind FIIs slowing down on fresh investments and booking of some profits.

Nissan Copper’s IPO for 64.1-lakh-shares was subscribed 5.2 times in December and the offer price was fixed at Rs 39 per share. However, on debut, the stock rose to a high of Rs 135.70 on the BSE, before ending the day at Rs 128.80. Delivery-based transactions accounted for over 60 lakh shares on that day, arousing suspicion that the prices may have been rigged. The following day, it climbed to a new high of Rs 154.55, before closing at Rs 115.20. After Sebi imposed the ban on payout of shares and funds — which was partially lifted later last week — Nissan Copper shares have been steadily going downhill. The stock closed at Rs 68.85 on January 22. Sebi has withled the payouts of 40 entities who are suspected of attempting to rig the share price of Nissan Copper. “An important feature of the trading on December 29, 2006 was that there were clients who sold heavily even though they did not appear to be in the list of top 100 allottees in the IPO. Prima facie, it appeared that the said clients had sold on the basis of some prior understanding with the top allottees in the IPO who would in turn deliver the shares to these clients to fulfill their pay-in obligations,” Sebi had said in its order.

Many entities named in the IPO share allotment scam are also said to be involved in the recent manipulation of Nissan Copper shares. Sebi’s order in the Nissan Copper share manipulation case mentions that the modus operandi was similar to that in the IPO allotment scam. Its initial investigation has revealed cases of multiple IPO applications with different combinations of names, but often with the same PAN and same residential addresses. “The trading pattern on the first day of listing and offloading of around 88 per cent of issue size (by Venus Capital Management, a FII) suggests that there is something more to the price rise and high volumes of the shares of the company than what meets the eye,” the Sebi order had said.

Backed by 19 states, the Central government said that an interim investment pattern would be notified for funds collected under the New Pension Scheme (NPS) to allow 5 per cent investment of the corpus in stock market. Under NPS, the Centre and states have collected about Rs 1,500 crore till date. The initiative will allow more funds to flow into the market and provide an opportunity for better returns to NPS subscribers. The NPS corpus earns only 8 per cent interest at present. The government plans to appoint fund managers to handle the investments and the first one is likely to be from the public sector. The decision comes despite opposition by the Left parties and Left-ruled states of West Bengal , Kerala and Tripura have rejected the proposed investment pattern. They feel that subscribers should not be subjected to risks associated with stock market investments.

After the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE), foreign stock exchanges are now eyeing equity stake in the Over the Counter Exchange of India (OTCEI), as the government is planning to throw a lifeline to the now defunct bourse for small and medium companies. It is learnt that the government wanted to position the OTCEI on the lines of London 's Alternative Investment Market (AIM) by allowing easier corporate governance norms for the exchange. Besides, the government is likely to encourage foreign stock exchanges to buy a strategic stake in the bourse.

Derivatives

FIIs were net buyers in the F&O during the week at Rs 300 crore. They were net sellers in stock futures at Rs 990 crore with net buying in index futures and index options. The aggregate open interest positions, however, declined last week as FIIs squared off their positions worth Rs 7000 crore on account of expiry of January contracts.

Government Securities Market

Primary Market

RBI conducted the auction of 7.94 per cent 2021 for a notified amount of Rs.5000 crore. The cut-off price and cut-off yield of the government security was Rs.97.81 and 8.2005 per cent respectively.

The Government of Jammu & Kashmir has announced the sale of 10-year State Development Loan for an aggregate amount of Rs.200 crore through a yield-based auction using multiple price auction method on February 2, 2007.

Secondary Market

The inflation rate, as measured by the wholesale price index (WPI), declined to 5.95 per cent for the week ended January 13, 2007 as compared 6.12 per cent for the week ended January 6, 2007. The inflation rate for the comparable week one year back (January 14, 2006) was 4.19 per cent.

During the week, the weighted average call rates during the period ranged between 7.76 per cent and 7.93 per cent, while weighted average repo rates ranged between 7.04 per cent and 7.32 per cent and the weighted average CBLO rates ranged between 7.23 per cent and 7.25 per cent. The average volumes of Call, Repo and CBLO segments were Rs.12,436.96 crore, Rs.5,980.65 crore and Rs.14,755.24 crore respectively. The daily average outstanding amounts in the LAF (reverse repo) and LAF (repo) operations conducted during the period were Rs.210 crore and Rs.12,419 crore respectively.

Under the interim investment pattern (modelled on the lines of non-government provident funds), the Union Government has decided to allow 25 per cent of the corpus accumulated under the new pension scheme to be invested in central government securities, 15 per cent in state government securities and 25 per cent in public financial institutions and others, and 5 per cent in equities. The remaining 30 per cent can be invested in any of the first three instruments mentioned above.

CCIL launched the CCIL MIBOR (CCIL Mumbai Inter-Bank Offer Rate) /MIBID (CCIL Mumbai Inter-Bank Bid Rate) based on Dealt Quotes from NDS-Call on January 25, 2007.

The weighted average YTM of  8.07 per cent 2017 bond was 7.8693 per cent on January 25,2007 as compared to 7.7896 per cent on January 19,2007. The 1-10 year YTM spreads increased by 5 bps to 59bps.

Bond Market

Despite an under-developed debt market and fewer number of entities accessing it, the resource mobilised through debt has increased 45 per cent in 2006 to a staggering Rs 80,000 crore. Close to 67 per cent (Rs 59,000 crore) of the total debt amount has been mobilised by banks and financial institutions to augment their capital base. In comparison, despite bullishness in the capital market, the mop-up through equity markets by corporates has almost stagnated at around Rs 20,000 crore. Also, in a noteworthy development, the number of entities tapping the domestic bond market has fallen on account of issues related to stamp duty in the above-mentioned period.

Foreign Exchange Market

The rupee-dollar exchange rate has appreciated from Rs 44.34 on January 19 to Rs 44.24 on January 25. The six-month forward premia closed at 3.97 per cent (annualized) on January 25, 2007 vis-à-vis 3.67 per cent on January 19, 2007.

Commodities Futures Derivatives

The FMC Director, Mr Anupam Mishra, has said that the Forward Contracts (Regulation) Act, 1952 has now become archaic and is coming up in a new form, factoring the market changes and for better financial administration. We expect this enactment to come into being early next fiscal. He further said that the first nine months of the current fiscal have been eventful and the commodity exchanges transacted business of over Rs 27 lakh crore against Rs 21 lakh crore last fiscal.

The NCDEX Managing Director, Mr P.H. Ravi Kumar, said that the futures trading in commodities on an online commodity exchange such as NCDEX has brought about transparency and fair price on account of largescale participation of entities associated with different value chains. This reflects the views and expectations of a wider section of people in relation to a particular commodity. NCDEX has emerged as an effective platform for price risk management for all segments of players ranging from producers, traders, processors, exporters and importers to end-users of the commodity. He further said that the effort is on to bring even small and marginal farmers into the fold. Logistics is one issue is hindering bringing them on for trading. If a truck has to be transported it would have to take about 10 tonnes. A small farmer cannot handle this alone, nor can we transport half the truck. To address this, it is proposed to form teams of 5-6 traders for wheat and 7-8 in the case of pulses.

Mr Ravi Kumar also said that it has become difficult to distinguish between a farmer and a trader since in some cases they act as both. In order to bring about such a distinction, Kisan cards are being considered.

The Multi Commodity Exchange (MCX) is set to launch coffee futures linked to London International Finance and Futures Exchange (Liffe) on Monday. The Forward Markets Commission (FMC) has for the first time given the nod for night trade in an agro commodity. According to MCX officials, futures trade would be in robusta coffee and will be formally launched by Coffee Board chairman GV Krishna Rau.

A day after the finance ministry cut customs duty on cement and other products to check inflation, commodities market regulator Forward Markets Commission imposed a temporary ban on two essential commodities, urad and tur, from futures trading. Delisting these two commodities for trade on all exchanges, the FMC directive asked traders to square off all their positions at Tuesday’s closing price. Traders have been told not to trade in these two commodities without the permission of the FMC. The rising prices of essential commodities have been an issue of major concern within various sections in the government. The government allowed free import of pulses against zero duty, but even this failed to ease the situation with inflation climbing to 6.12 per cent for the week ended January 6. When inflation breached the 6 per cent mark, the finance ministry said among food items, urad, tea, tomatoes, coconut and arhar were a matter for concern. A statement said the ministry was in touch with the agriculture ministry on how to control the rising prices of these commodities. A day after the Government jolt by way of banning futures trading in two pulses (tur and urad) the market saw a decline in futures prices across commodities. Presence of bearish fundamentals in the market also led to the decline in prices of wheat and edible oil, observers said. Refined soya oil declined by about 6 per cent at Rs 455.7 per 10 kg on one of the exchanges.

The government’s decision of banning futures trade in tur and urad had a ripple effect across the mandis on Wednesday. The spot prices of the banned commodities witnessed a fall of 4 to 8 per cent in the physical market. Traders with positions in the futures market and those with stocks meant for delivery sold heavily in the spot market after squaring off their futures deals on Tuesday, leading to a decline in prices. The agri-futures market, as expected, opened on a weaker note, but recovered within an hour after Chairman of the Forward Markets Commission S Sundareshan assured that trading in other commodities would continue as usual. However, analysts foresee the bearish trend to stay for the time being, with apprehension of a ban on other commodities looming large. In the Latur market, a leading hub of pulses trade, prices plunged, with tur quoting Rs 2,200 a quintal on Wednesday against the previous day’s price of Rs 2,400 a quintal. Similarly, urad declined to Rs 3,450 from Rs 3,600 a quintal whereas Chana slipped by Rs 100 to Rs 2,400 a quintal. However, in the Delhi market, the physical pulses market remained more or less steady. Chana quoted at Rs 2,600 a quintal whereas tur remained in the range of Rs 2,200-2,300 a quintal. “Fall in the spot prices of pulses is the immediate reaction to the ban. The prices will be controlled by the fundamentals alone,” said a commodity analyst. The country expects a normal crop of chana and urad. In case of tur, there is a crop damage of 20 to 25 per cent.

After 30 per cent decline in turnover in the second fortnight of December, commodities exchanges have witnessed a rebound in the value of trading during the first fortnight of January with a record 38.33 per cent growth, according to data released by Forward Markets Commission (FMC). However, the growth was a meagre 3.5 per cent compared with the first fortnight of December. Commodities exchanges clocked a turnover of Rs 147,273.55 crore during the first fortnight of the current month compared with Rs 106,462.54 crore in the second and Rs 142,311.22 crore in the first fortnight of December. Ahmedabad-based National Multi-Commodity Exchange (NMCE) topped the chart with 72 per cent growth in turnover at Rs 1,474.16 crore in the first half of January compared with Rs 853 crore during the second half of December. The leading commodity exchange, Multi Commodity Exchange of India (MCX), came second with 52 per cent growth at Rs 104,997.48 crore. The exchange remained a top performer with regard to all-round trade with copper gaining 90 per cent in value term at Rs 15,641.27 crore. Gold clocked a turnover of Rs 27,110.07 crore (up 68 per cent), silver Rs 25,161.80 crore (up 36 per cent), natural gas Rs 1,661.52 crore, mentha oil Rs 2,858.30 crore and guar seed Rs 3,454.41 crore. The second largest commodity exchange in the country, National Commodity and Derivatives Exchange (NCDEX), also registered a turnover growth of 14 per cent at Rs 36,297.10 crore during the first fortnight of the current month from Rs 31,757 crore posted during the last fortnight. The overall value of trading between April 1, 2006 to January 15, 2007, has been recorded at Rs 2886,613.91 crore.

Corporate Sector

Deccan Aviation has posted a net profit of Rs 9.64 crore for the quarter ended December 31, 2006, against a net loss of Rs 33.35 crore for the half-year ended December 31, 2006. There are no prior period comparisons as the company was listed in June 2006. The improved performance was partly on account of other income of Rs 161.93 crore, which included Rs 132.69 crore that accrued as the second tranche of payment on aircraft sale.

In a bid aimed at bringing inflation under control, the government has cut customs duty on 11 product categories, including portland cement, capital goods, project imports and raw materials. While the duty on portland cement has been cut from 12.5 per cent to nil, the duty on stainless steel has been reduced from 7.5 per cent to 5 per cent, on specified capital goods from 12.5 per cent to 7.5 per cent and on primary semi-finished base metals from 7.5 per cent to 5 per cent. The government has also reduced the duty on project imports from 12.5 per cent to 5 per cent. In addition, it has cut the duty on organic chemicals like sulphur, carbon, hydrogen and alkali metals from 10 per cent to 5 per cent.

Fiscal Sector

The net direct tax collections of the central government have increased by 41.74 per cent during April 1, 2006 to January 22,2007 to Rs 1,55,442 crore as compared to Rs 1,09,668 crore during the corresponding period of the previous year. While gross corporate tax collections for the period under review have stood at Rs 1,18,183 crore (Rs 82,550 crore during the corresponding period of the previous year), personal income tax collections have surged to Rs 56,228 crore (Rs 44,215 crore). The income-tax department has detected tax evasion of over Rs 1,700 crore and seized undisclosed assets worth about Rs 228 crore in searches carried out during the current fiscal year up to November 2006.

Central government would provide Rs 1,000 crore as budgetary support to states in the first year of the central sales tax phase-out. This has been a part of a compensation package. The compensation package would be based broadly on what was agreed upon and would be a combination of states being given more services to be taxed and budgetary support. But several states are still not satisfied with the compensation package. The CST, currently levied at 4 per cent, has set to be reduced by 1 per cent annually over a period of four years, so that it has been completely abolished by 2010-11. As part of the compensation package, states would get the entire proceeds from 33 services currently being taxed by the Central government and the 44 new services. The CST is estimated to generate over Rs 25,000 crore during the next fiscal year and the 1 per cent decrease would lead to an estimated loss of Rs 6,250 crore for states.

In a moved aimed at bringing inflation under control, the government has cut customs duty on 11 product categories, including Portland cement, capital goods, project imports and raw materials. While the duty on Portland cement has been cut from 12.5 per cent to nil, the duty on stainless steel has been reduced from 7.5 per cent to 5 per cent, on specified capital goods from 12.5 per cent to 7.5 per cent and on primary semi-finished base metals from 7.5 per cent to 5 per cent. Fuelled by a rise in the prices of foodgrain, cement and base metals, inflation rose to a two-year high of 6.12 per cent for the week ended January 6, 2007. The government has also reduced the duty on project imports from 12.5 per cent to 5 per cent. Significantly, it has extended the project import rate of 7.5 per cent to airport development projects and Metro rail projects.  In addition, it has cut the duty on organic chemicals like halogens, sulphur, carbon, hydrogen and alkali metals from 10 per cent to 5 per cent, on carbon black feedstock from 10 per cent to 5 per cent and on refractories from 7.5 per cent to 5 per cent.   

External Sector

Export of India , during December 2006, has seen an increase of 19.5 per cent to $ 9.9 billion. Cumulatively, the country's exports have remain buoyant during the first three quarters of the current fiscal year, posting a 36.27 per cent growth at $ 89 billion, against $ 66 billion during the corresponding period of the previous year. According to provisional figures based on the data gleaned by the Directorate-General of Commercial Intelligence & Statistics (DGCI&S), the export growth cumulatively slowed down to 22 per cent if the provisionally revised figure for April-December 2005 ($ 73 billion) is compared to the provisional figure of the corresponding period this fiscal ($ 89 billion). The country's imports during December 2006 have valued at $ 15.5 billion against $ 10.9 billion in December 2005, showing a hefty growth of 42 per cent. Cumulatively, import growth during the first three quarters of the current fiscal ran at 36.30 per cent with imports during April-December 2006 being estimated at $ 131.2 billion compared with $ 96.2 billion in the corresponding period of 2005. However, the provisionally revised import growth for April-December 2005 has been estimated at $ 105.1 billion. Non-oil imports during December 2006, have witnessed a growth of 31.81 per cent amounting to $ 10.7 billion over the value of non-oil imports at $ 8.1 billion recorded during December 2005. The high non-oil import growth in December 2006 reflects import of capital equipment and other import-related industrial inputs for domestic manufacturing and exports. Cumulatively, non-oil imports during April-December 2006 have valued at $ 87.3 billion, 18.67 per cent higher than the level of such imports valued at $ 73.6 billion during the corresponding period last year. Crude oil imports during the first three quarters of the current fiscal were valued at $ 43.8 billion ($31.4 billion), which was 39.23 per cent higher. As a result of high export growth and higher import growth, the country's trade deficit during the first nine months of the current fiscal year has increased to $ 41.7 billion, higher than the deficit of $ 30.5 billion during April-December 2005.

Information Technology

Wipro Infotech, the India , Middle East and Asia Pacific IT Business of Wipro Ltd. has floated a joint venture with Dar Al Riyadh Group in the Kingdom of Saudi Arabia to tap local market.

EstatsIndia, an internet research and consulting firm, estimates that the business-to-consumer (B2C) market in e-commerce in terms of revenues for the fiscal 2006-07 would be Rs 4,160 crore. Within this, it estimates the market size of retail segment and job portals at Rs 200 crore each, with e-greetings and ISPs each bagging Rs 20 crore of online retail. The matrimonial and dating services would contribute Rs 120 crore and e-broking based transactions would be Rs 80 crore. As consumers prefer to book tickets online, based on the billing figures the e-ticketing market is estimated at Rs 1400 crore and bookings of hotels, cars and e-tours at Rs 300 crore. Mobile value added services have been placed at Rs 580 crore and e-gaming at Rs 480 crore.

Telecom

The Telecom Regulatory Authority of India (TRAI) has issued a tariff order substantially reducing the tariffs for national roaming for cellular mobile subscribers. The tariff order is applicable for all mobile customers, prepaid and post paid, and applicable across all type of tariff plans offered by both GSM and CDMA mobile operators. The reduction in the roaming rate includes the removal of a 15 per cent surcharge on air time plus a carrier charge of Re 1 on every call. Besides, no rental permitted for roaming in any form. Receiving SMS is free while roaming. Maximum permissible per minute charges for roaming calls, irrespective of the terminating networks, and irrespective of tariff plans would be: Rs 1.40 for outgoing local calls; Rs 2.40 for outgoing NLD calls and Rs 1.75 for incoming calls.

Bharti Airtel has transferred its passive infrastructure for mobile communications such as towers into a wholly owned subsidiary, Bharti Infratel Ltd., the move was initiated at increasing operational efficiencies and cutting down on costs. Bharti has 34,000 towers across the country, which can now be shared with other mobile operators for a fee. Bharti has applied for a DTH licence and would be launcing DTH service by the end of 2007.

Riding on an unprecedented growth in mobile subscribers, Bharti Airtel has registered 123 per cent growth in its net profit to Rs 1,215 crore for the third quarter ended December 2006 compared to Rs 545 crore in the corresponding quarter previous year. The growth has been on account of a huge surge in the mobile subscriber base with nearly 4.7 million new users added in the third quarter. Bharti had 31.9 million mobile users at the end of 2006 compared to 16 million at the end of 2005.

*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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