Current Economic Statistics and Review For the Week Ended September 15

A major development with far-reaching implications on international scenario has been that India has emerged as one of the world’s major IT powerhouses. Within a short span of 4-5 years the Indian software industry, which has been growing at an amazing pace, has emerged as a successful player in the international market and is enjoying the benefit of a good reputation. On a wider canvass, India has thus begun to reap, the benefits of building technical institutes and expanding technical knowledge in the post-independence period.

India

’s software industry can be divided into the export sector and the domestic sector. Unlike manufacturing, where typically growth is driven, by and large, by the domestic market, in the case of software industry it has been the explosion in export demand that has been fuelling higher growth and for a longer period. A phenomenal structural transformation in the world economy has been instrumental in generating such explosive demand for IT services. A significant feature of the structural transformation of the Indian IT industry in recent years has been the rising contribution of services sector exports which include substantial value-added and skill-intensive services, predominantly software development and production, information technology enabled services (ITeS), business process outsourcing (BPO) and knowledge-process outsourcing (KPO) – outsourcing by foreign countries in favour of India. Predominantly, the ITeS-BPO services sector has emerged as the fastest growing sector in terms of exports earnings.

Over the last decade, India has made a conscious effort to participate in the global software industry by providing software development services to client companies’ the world over. Presently, the IT, ITeS-BPO exports revenue constitutes more than 70 per cent of the total revenue of India ’s IT sector. By 2000-01, the total revenue has risen to US $ 12.1 billion from a mere US $ 150 million in 1991-92. From 2001 onwards, Indian info-tech companies, apart from consolidating their presence in traditional verticals such as BFSI (banking, financial services and insurance), diversified into new verticals such as telecom, retail, utilities and health care and initiated offering new services like enterprise application integration (EAI), package implementation, engineering services, software testing and service-oriented architecture and web services. Consequently, during the three year period 2002-04, the impressive growth rate of India ’s IT sector continued despite global competition and appreciation of the rupee, with its revenue rising from US $ 13.4 billion in 2001-02 to a staggering US $ 21.6 billion in 2003-04 (Table 1).

Table 1: Annual Revenues of Indian IT Sector
Year	Annual Revenue (US $ billion)	Percentage Growth	Per cent of GDP
(1)	(2)	(3)	(4)
1999-00	5.7		-
2000-01	12.1	112.3	2.7
2001-02	13.4	10.7	2.9
2002-03	16.1	20.1	3.2
2003-04	21.6	34.2	3.5
2004-05	28.4	31.5	4.1
2005-06	36.3	27.8	4.8
Source: Nasscom

In the next two years of 2004-06 about $15 billion got added to the revenue base, that is, equivalent to that was added in the previous four years. The domestic market revenues have been augmented due to increased spending by industry verticals such as telecom, banking and financial services, manufacturing, SMEs, retail and BPO/IT-enabled services as well as major e-governance initiatives of the central and state governments. According to National Association of Software and Service Companies (Nasscom) the revenue of the Indian IT sector has exceeded US$ 36 billion during 2005-06 from US$28.4 billion in 2004-05 and $21.6 billion during 2003-04.

Till a few years ago, Information Technology (IT) did not have an industry status and it was being dealt with the same rules as those applicable to conventional manufacturing industry. But today, IT in India has been transformed from a small sector to a large growing and independent segment industry. India ’s IT industry has been largely dominated by the software industry as it has no presence worth the name in the hardware segment. According to Nasscom, software development and services are the fastest growing industry in India . Today, the software sector has been the engine of growth of the booming IT industry in India , which is growing at an average rate of 50 per cent between 1995 and 2006. With strong demand over the past few years placing India among the fastest growing IT markets in the world, the IT industry’s contribution to GDP rose from 1.2 per cent in 1999-2000 to 4.8 per cent in 2005-06.

In the last 5-7 years the role played by the IT industry in transforming India from a slow-growth economy with frequent balance of payments problems to a fast-growth economy generating ample foreign exchange surpluses, has been by any means to be rated as very significant. India’s IT revenue has been a major contributor for the growth in foreign exchange inflows associated with services industries between 2000 and 2005, with the value of software services exports galloping from US$6.34 billion in 2000-01 to US$23.6 billion in 2005-06 (RBI’s BoP data).

The industry sources have anticipated that in the next five years, India's IT industry revenue could generate US$60 billion, accounting for 17 percent of GDP growth and offering jobs to around 9 million people.

Over the last decade, millions of Indians have benefited directly or indirectly due to the spectacular and sustainable growth achieved by the IT industry. A major impact of this growth has been on employment creation, which has been almost employing 1-1.5 lakh employees every year. As per industry experts, the key and most important cause of the growth of the Indian IT industry has been the large and steady supply of engineers, this has also happened because manufacturing and other real sectors have shown comparatively limited demand for engineers – which of course represents an aspect of the economy’s structural transformation.

As per the findings of Suma Athreye and Ashish Arora (2000), “India’s specialisation in software has been driven by two sorts of wage advantages that have reinforced each other: the lower wages for Indian software developers relative to that of their US and European counterparts make Indian software cheaper in global markets, while the higher wages earned by software professionals in India relative to that in other industrial sectors has ensured a steady stream of supply of software professionals.”

India

’s main competitive advantage in the software and services industry is its abundant English-speaking and cost-effective human resource. In 1997, the software industry employed 160,000 constituting only a small fraction of the total employed workforce of 28.245 million in the organised sector. However, the employment in the IT industry has been growing rapidly, as compared to other sectors of the economy.

During the period 1998-2001 the Indian IT opportunity boom was built on the back of Y2K problem. Almost all the developed countries of the world, particularly western countries faced a shortage of skilled manpower to fix the Y2K bug. The US primarily required a huge number of software engineers to solve their problem. Indian IT professionals took advantage of this opportunity and rendered their expertise in solving the Y2K bug. This led Indian IT companies to a great strategic position of moving forward to the most dynamic business sector in the world. Eventually, the Indian software industry has sustained its competitive advantage and in future it will have reasonable growth prospects.

In some ways, this is a counter-point from many of the earlier predictions in the literature that suggested that the growth of the software industry in India was a temporary phenomenon which exploited an existing opportunity of shortage of software engineers in western countries and benefited from the consequent moves towards outsourcing.

The booming Indian IT-ITES industry, over the last decade, has emerged as one of the major providers of employment opportunities to engineering, science and management graduates. In the past 5-6 years, not only engineering graduates from the IT, computer sciences, electronics and telecom fields but also an appreciable number of graduates from other branches of engineering like civil, electrical and mechanical are being employed in the IT firms.

Further, the IT-ITES industry in India is indirectly creating job opportunities in support services, including transportation, catering and security, as a spin-off effect. As per, Nasscom study, generally, the multiplier effect of the high-tech sector on indirect employment avenues is about 2.5 times.

As per the latest Nasscom report, during the financial year 2005-06, the Indian IT industry has offered direct employment to 12.93 lakh people as against 10.58 lakh in 2004-05 and the industry’s employee strength has been estimated at about 16.30 lakh during 2006-07. During 2005-06, the IT services sector and ITES-BPO sector offered employment to around 3.98 lakh and 4.15 lakh people, respectively, while the domestic market employed around 3.65 lakh people.

The IT companies in India , in collaboration with the government and other stakeholders, have commenced several initiatives to further enhance the availability of, and access to, suitable talents for the IT-ITES sector in India .

Table 2: Employment in Software and Services sector (in lakh persons)
Segments	2003-04	2004-05	2005-06	2006-07 (E)
IT Services	2.15	2.97	3.98	5.62
ITES-BPO	2.16	3.16	4.15	5.45
Engineering Services, R&D and Software Products	0.81	0.93	1.15	1.44
Domestic Market (Including User Organisations)	3.18	3.52	3.65	3.78
Total Employment	8.3	10.58	12.93	16.30
Source: Nasscom

A study of the top three IT companies indicates that as on December 31, 2006, the total employment strength of Tata Consultancy Services (TCS) has stood at 83,500 persons (Table 3) with employees of 60 different nationalities and 25 per cent women employees; non-Indian nationals formed 8.8 per cent of the total employee base.

Table 3: Employee Strength of Select Indian IT Companies
Company	Number of Total Employees as on December 31		Net Additions	Per cent Change
Company	2006	2005	Net Additions
TCS	83,500	59,384	24,116	40.6
Infosys Tech	69,432	49,422	20,010	40.5
Wipro	66,176	51,024	15,152	29.7
Total	2,19,108	1,59,830	59,278	37.1
IBM India	53,000	38,500	14,500	37.7
Source: Various media sources.

Closing the gap with the top Indian IT companies in terms of record employee additions, IBM has become the first IT multinational to cross the 50,000 employee – mark as of the end of December 2006. IBM’s India headcount has touched 53,000 as on December 31, 2006, the company added 14,500 employees in calendar 2006 as it shifted more projects to India to leverage offshore delivery capabilities, registering around 38 per cent rise in headcount over the past year. At present, IBM’s employee intake is almost on par with that of the top three Indian IT firms, which have collectively added 59,278 people to their rolls in 2006. Infosys has added over 20,010 employees, while Wipro has hired 15,152 people in the calendar year 2006. With 53,000 employees in 27 locations, India is the home to the largest base of IBM employees outside the US accounting for about one sixth of the company’s total global workforce.

In order to withstand growing global competition, the Indian IT companies have started moving up the value chain by exploring untapped potential in IT consulting and system integration, hardware support and installation and processing services. India has now become a hub for multinational firms for software development, supply chain management and other services as security concerns have also been duly recognised to maintain customer confidence. In recent years, Indian IT companies are winning multi-year, multi-million dollar contract from global firms. During 2005-06, India ’s IT and ITES-BPO companies have bagged the country’s biggest ever outsourcing deal from multi-national companies. TCS and Infosys Technologies have together won outsourcing contract worth $ 400 million from Dutch bank ABN Amro.

Generally, the leading sector stimulates growth and employment in the other sectors of the economy by virtue of its linkages – forward and backward – with other sectors. There is however, a general perception that on the whole, software industry creates relatively fewer linkages with other sectors of the economy.

But a recent study undertaken by Nasscom contradicts the above notion. In India , the augmentation of IT industry’s revenue is creating favourable effect for the growth of other sectors. A recent study, “The Rising Tide—Output and Employment Linkages of IT-ITES” by CRISIL and Nasscom has shown that the growth of the IT industry has had a direct bearing and multiplier effect on the Indian economy, including its vital parameters such as employment and consumption spending. The IT industry have also played a major in the socio-economic transformation of the country by contributing to the success of other sectors that they share either backward or forward linkages with. Some of the major findings of the CRISIL study are as follows:

1) In 2005-06, the employees of the IT industry spent Rs 2,600 crore on domestic consumption;

2) Every Re 1 spent by the IT industry (on domestically sourced goods and services), translated into a total of about Rs 2 in the economy.

3) For each person employed in the IT industry, around four people are employed in the rest of the economy.

As per Dharmakirti Joshi, Principal Economist, CRISIL (2006), “Apart from backward linkages with sectors that feed into IT-ITES, the study found that consumption spending by IT employees who on an average earn relatively higher incomes at younger ages, has a strong multiplier effect on the economy. This spending has given a boost to housing, transport, hospitality and entertainment and created employment there”.

Even as the Indian IT industry is poised for growth, a major inhibiting factor is the high attrition rate in the software companies and particularly in the BPO companies. In recent years the top 3 IT companies of India are also facing the problem higher attrition rate as the top global IT companies are setting up their offices in India, like Microsoft, Google, IBM, Oracle and Cisco etc.

Steady supply of highly skilled and competent global workforce is one of the key elements in maintaining the growth momentum of India ’s IT industry. Today, the IT manpower development is not only crucial for sustaining the growth of the India’s IT industry, it is also important for maintaining the country's edge in the global markets, where competition is on the rise.

To sharpen the IT industry’s value proposition and extend India ’s leadership in the global IT-ITES space, Nasscom and the industry have already taken several initiatives to further enhance the availability of, and access to, suitable talents for IT-ITES in India . These initiatives include:

1) Nasscom has signed a Memorandum of Understanding (MoU) with University Grants Commission (UGC) and All India Council for Technical Education (AICTE) last year, to strengthen professional education (through curricula, faculty, infrastructure, pedagogy improvements) in line with the IT industry’s requirements of demand for skilled professionals.

2) Nasscom has launched Nasscom Assessment of Competence (NAC) program for the potential employees in the BPO industry.

3) Nasscom and QAI, the leading quality consultancy in India , has recetly launched the first-of-its-kind Certification Program for Frontline Management for ITES-BPO sector.

4) Nasscom in its IT Workforce Development (ITWD) initiative is working with the academia across the country to encourage and facilitate greater industry interaction, thus helping them share relevant feedback, stay updated on developments in the industry and giving them an opportunity to incorporate positive changes to their curriculum and pedagogy.

Various industry-academia meets and round tables organized by Nasscom arrived at specific conclusions regarding the problems faced by the Indian ICT industry in the area of HR development. The IT Industry and the Academia have identified some concerns:

4) Conducting advanced studies and special research projects (based on current market requirements) in emerging technology areas;

8) Improving the standards of the existing government and private educational institutes.

References

Arora, A and Athreye S (2002): “The software industry and India ’s economic development”,

GOI (2006): ‘Annual Report 2005-06, Information Technology’, Ministry of Communications

GOI (2007): ‘Economic Survey 2006-07’, Ministry of Finance, Economic Division, New Delhi .

GOI (2006): ‘Economic Survey 2005-06’, Ministry of Finance, Economic Division, New Delhi .

GOI (2005): ‘Economic Survey 2004-05’, Ministry of Finance, Economic Division, New Delhi .

IBEF (2006), ‘Information Technology Enables Services’, Executive Summary, New Delhi .

IBEF (2006), ‘Going Global, India Multinationals’, Executive Summary, New Delhi .

NASSCOM, ‘Extending India 's Leadership of the Global IT and BPO Industries’,

NASSCOM-CRISIL, “The Rising Tide—Output and Employment Linkages of IT-ITES”,

As a part of the central government’s strategy to restrain the rising prices of agricultural products in the domestic market, it is considering setting up a price stabilisation fund along with a market intervention plan for all agriculture products. With the proposed plan, the government would be able to intervene if the price of a particular product rise beyond a threshold limit or fall below a floor price.

In the view of current wheat crop estimated at 72.5 million tonnes, lower than the expected 74 million tonnes, the government has banned wheat exports for the whole of 2007 in order to control the rising prices of wheat and to ensure the sufficient procurement of wheat by the Food Corporation of India (FCI) during the year. Last year, FCI’s procurement fell sharply to 9.2 million tonnes from 14.8 million tonnes in the previous year, forcing the government to import 5.5 million tonnes. The ban has come into effect since February 9, 2007.

The central government has been considering several plans to procure higher quantity of wheat such as imposing country-level stock limits to keep private and MNC traders away from procurement, of paying a higher bonus to farmers above the minimum support price (MSP), if the need arises and asking private and MNC traders to procure their requirements from other wheat-producing states such as Madhya Pradesh, Gujarat and Rajasthan instead of from Punjab, Haryana and Uttar Pradesh. It has set a target of purchasing 15 million tonnes of during the marketing season 2007-08. The procurement activities would commence 5-days in advance of scheduled date, that is from March 15, 2007 in Madhya Pradesh, while in Punjab and Haryana from April 01, 2007 and by the second week of April in Uttar Pradesh.

The country has so far received 4.99 million tonnes imported wheat as against 5.5 million tonnes contracted by the central government. The balance 5.57 lakh tonnes imported wheat is expected to reach the ports by the end of February 2007. Of the total imported wheat that has reached Indian shores so far, about 4.91 million tonnes has already been discharged from ships, and 4.22 million tonnes has been moved to the Food Corp. warehouses.

National Agricultural Cooperative Marketing Federation of India Ltd (Nafed) is likely to procure about 20 lakh tonne of mustard in the current rabi season as the market price has slid below the minimum support price (MSP) of Rs 1,715 per quintal. The current market price of mustard is in the range of Rs 1,550-1,650 per quintal.

The retail egg prices in the domestic market have touched an all time high of Rs 3 per piece (against Rs 2 last year) owing to and. Factors like culling of large number of birds in 2006 after the outbreak of bird flu resulting in shortage in production, rising feed cost such as that of maize and higher demand for eggs from the northern parts owing to unseasonal rains have been considered responsible for this price-hike. The egg production for 2006-07 is estimated to fall by 20 per cent at about 30,000 million eggs from 37,500 million eggs produced in calendar year 2005-06.

As per the Solvent Extractors’ Association, the imports of edible oil have increased by a robust 36 per cent to 312,584 tonnes in the standalone month of January 2006 as against a year ago though it has been 15 per cent lower from that in December 2006. a similar trend has been observed in case of non-edible oil imports as well, which have surged by 52.8 per cent to 36,110 tonnes during January 2007 from 23,626 tonnes a year ago, however down from 72,890 tonnes in December. As per the industry experts, edible oil imports had risen sharply in December 2006 in the wake of lower kharif oilseed output estimates. During November-January 2006-07, the country’s edible oil imports have stood at 932,214 tonnes, 20 per cent higher compared with the same period a year ago and that of non-edible oil have surged by 7.8 per cent to 158,792 tonne, during the same period.

As per the latest data from Tea Board, tea exports from the country have touched a record level of 203.86 million kg in 2006. A monthly shipment of 20 million kg from October 2006 onwards has helped the industry to record total exports last year. The gaining market share of Indian tea in the Pakistani market, which consumes 140 million kg annually and slump in the Kenyan production in the first half due to a drought are the major factors that have contributed to higher tea exports from India during 2006.

India

’s coffee exports are expected to fall by at least 15 per cent in the calendar year 2007 on account of lower crop and opening stocks and growers holding back arabica variety in the hope of better prices. The opening stocks have dwindled below 10,000 tonnes in 2007 as against the average level of around 30,000 tonnes.

The US shrimp exports from the country to US has hampered badly, by nearly 50 per cent due to imposition of anti-dumping duty to the extent of 10.17 per cent, which has been coupled with a matching customs bond during the calendar year 2006. The shrimp exports have dipped to $252 million during 2006 from exports worth $485 million in 2005.

Board for Reconstruction of Public Sector Enterprises (BRPSE) has given approval to revive closed fertiliser units of Fertiliser Corporation of India (FCI) and Hindustan Fertiliser Corporation (HFC). Under the current proposal, brown-field plants would be set at the existing sites on the basis of their physical condition. Iinitially four plants - at Durgapur , Brauni, Sindri and Gorakhpur - would be made operationalised, with an investment of about Rs 1,000 crore. Once revived, these units will add about 50 lakh additional urea capacity from the domestic sector, saving about $ 1.25 billion on costly imports annually. This would also bring down the subsidy burden substantially.

To take advantage of lifting clamps on import of mangoes from India by the Japanese and US Government, the central government has plans to open two pack houses one at Tirupati (Chittoor district) and other at Nuziveedu (Krishna district) that include vapour heat treatment (VHT) systems. The AGROS (AP State Agro Industries Development Corporation) has would work as a nodal agency for setting up the two pack houses, which would also have facilities for grading, sorting, packaging and cold storage facilities.

HDFC Bank has entered into an agreement with Godrej Aadhaar, the agri services and retail initiative of Godrej Agrovet Ltd, to offer agri-credit facility in the rural areas. The farmers, associated with Godrej Aadhaar, would be able to avail themselves of cash credit and term loans post-assessment of their land holdings and cropping patterns at a preferential interest rate. These farmers could also get loan facility for their farm mechanisation needs such as tractors, combine harvesters and other agri-related implements on

Industry

As per the Economic Survey 2006-07, the major challenge faced by India 's automobile industry is to enhance its capabilities to innovate and upgrade so as to remain competitive in terms of quality and price in the global market. The automobile industry has grown at a rate of 16 per cent since 2001 and de-licensing and relaxed FDI norms have helped it post impressive growth in domestic and overseas markets. Automobile exports have crossed the $ 1 billion mark in 2003-04 and increased to $ 2.28 billion in 2005-06 with the industry exporting as much as 17.7 per cent and 16.3 per cent of its domestic production of three-wheelers and passenger cars in the year. The government expects that the benefits extended to the sector such as reduction of duty on raw materials, the setting up of National Automotive Testing and R&D Infrastructure Project (NATRIP) and the finalisation of Automotive Mission Plan (AMP) would provide a boost to the sector. Concomitantly, the auto components sector's turnover has grown to $ 10 billion in 2005-06, up from $ 3.1 billion in 1997-98 and its exports have also risen by 28 per cent to touch $ 1.8 billion in 2005-06.

The Economic Survey 2006-07 has predicted a doubling of turnover to Rs 1,00,000 crore for the pharmaceutical industry by 2010 and states that the National Pharmaceutical Policy will be implemented soon. The sector with exports of Rs 21,000 for 2005-06 has helped India become a leading global player in pharmaceuticals. A major share of exports has been to developed countries which testify the price competitiveness and high quality of Indian pharmaceuticals. The industry's sucess has also been attributed to qualitative and quantitative improvements in research and development backed by policy initiatives in the recent past. The industry is positioned fourth in terms of volume and thirteenth in terms of value, thus making it one of the lowest cost producers of drugs.

Provision for Scheme for Integrated Textiles Parks (SITP) to increase from Rs.189 crore to Rs.425 crore

Technology Upgradation Fund Scheme (TUFS) to continue with provision of Rs.911 crore

health insurance scheme to be extended to more weavers and also to be enlarged to include ancillary workers allocation for the sector to be enhanced from Rs.241 crore to Rs.321 crore

Increase in outstanding credit from Rs.135,200 crore to Rs.173,460 crore at end December 2006

Scheme for modernisation and technology upgradation with special emphasis to major coir producing states announced with a proposed provision of Rs.22.50 crore.

Reduction in peak rate for non-agricultural products from 12.5 per cent to 10 per cent

Reduction in duty on most chemicals and plastics from 12.5 per cent to 7.5 per cent

Reduction in duty on seconds and defectives of steel from 20 per cent to 10 per cent

Reduction in duty on polyester fibres and yarns from 10 per cent to 7.5 per cent and on raw-materials such as DMT, PTA and MEG from 10 per cent to 7.5 per cent

Reduction in duty on cut and polished diamonds from 5 per cent to 3 per cent; on rough synthetic stones from 12.5 per cent to 5 per cent; and on unworked corals from 30 per cent to 10 per cent

To augment irrigation facilities and processing of agricultural products, reduction in duty on drip irrigation systems, agricultural sprinklers and food processing machinery from 7.5 per cent to 5 per cent

To make edible oils more affordable, crude and refined edible oils to be exempt from additional CV duty of 4 per cent; reduction in duty on sunflower oil, both crude and refined, by 15 percentage points

Reduction in duty on watch dials and movements and umbrella parts from 12.5 per cent to 5 per cent

To promote research and development, concessional rate of 5 per cent duty to be extended to all research institutions registered with the Directorate of Scientific and Industrial Research

Reduction in duty from 7.5 per cent to 5 per cent on 15 specified machinery for pharmaceutical and biotechnology sector

Duty of 3 per cent (WTO bound rate) to be levied on all private import of aircraft including helicopters and such import to also attract countervailing duty and additional customs duty

Duty of Rs.300 per metric tonne to be levied on export of iron ores and concentrates and Rs.2,000 per metric tonne on export of chrome ores and concentrates

Reduction in ad valorem component of excise duty on petrol and diesel from 8 per cent to 6 per cent

Exemption limit for small scale industry (SSI) to be raised from Rs.1 crore to Rs.1.5 crore

To encourage food processing sector, biscuits whose retail sale price does not exceed Rs.50 per kilogram and all kinds of food mixes including instant mixes to be fully exempt

Reduction in duty on umbrellas and parts of footwear from 16 per cent to 8 per cent,on plywood from 16 per cent to 8 per cent and bio diesel to be fully exempt

To provide access to pure drinking water, water purification devices operating on specified membrane based technologies and domestic water filters not using electricity to be fully exempt; exemption on pipes used for carrying water from a water supply plant to a storage facility to be extended to all pipes of diameter exceeding 200 mm used in water supply systems

Reduction in the rate of duty from Rs.400 per metric tonne to Rs.350 per metric tonne on cement sold in retail at not more than Rs.190 per bag; rate of Rs.600 per metric tonne on cement that has a higher MRP

Specific rates of duty on cigarettes to be increased by about 5 per cent; duty (excluding cess) on biris to be raised from Rs.7 to Rs.11 per thousand for non-machine made biris and from Rs.17 to Rs.24 per thousand for machine made biris; duty on pan masala not containing tobacco to be reduced from 66 per cent to 45 per cent; withdrawal of exemption for pan masala containing tobacco and other tobacco products given to units in the North-Eastern states.

Infrastructure

The government has signed production-sharing agreements with winners of the 52 oil and gas blocks auctioned under the sixth round of New Exploration Licensing Policy (NELP). State-owned ONGC (with its partners) has signed contracts for 24 blocks — 12 deep water, 2 shallow water offshore and 10 onland; it is also a partner with Cairn Energy of UK in one shallow offshore block. Oil India has signed agreements for 6 onland blocks while Gujarat State Petroleum Corp (GSPC) for 3. Among the private players, Mukesh Ambani-led Reliance Industries Ltd has signed a pact for 7 deep-water blocks, while Santos of Australia has inked the contract for 2 deep-water blocks. A total of 165 bids (the highest ever) have been received for the 52 blocks under NELP-VI against 69 highest bids received in NELP-V and a total of 310 data packages amounting to Rs 78.60 crore have been sold as against the previous best sale of Rs 22.75 crore in NELP-V. Further, 20 new foreign companies out of 36 foreign companies from 17 countries have submitted bids under NELP-VI. The government is expecting an investment of about $5 billion in NELP-VI blocks and the petroleum ministry now plans to launch the seventh round with the highest number of blocks on offer ever more than 70 by April 2007 with a view to increasing domestic production. As per the ministry, a total of 32 oil and gas discoveries have been made in the country so far in the exploration blocks awarded in the five rounds under the NELP and in these discoveries oil and oil equivalent gas (O+OEG) of 400 million tonnes have been established.

The finance minister in the Budget for 2007-08 has announced a restructuring of the ongoing Accelerated Power Development and Reforms Programme (APDRP) to include all district headquarters and towns with a population of more than 50,000 since it has been found successful in significantly reducing aggregate technical and commercial losses in 213 towns. Along with a 23 per cent hike in budgetary allocation for the scheme from Rs 650 crore in 2006-07 to Rs 800 crore in 2007-08 has also been announced. Further, in light of the slippages in capacity addition targets during the current Tenth Plan period, faster implementation of the new ultra mega power projects (UMPP) and the setting up of merchant power stations has been stressed upon.

7 more ultra mega power projects under process and at least 2 to be awarded by July, 2007

Other initiatives include facilitating setting up of merchant power plants by private developers and private participation in transmission projects

Accelerated Power Development and Reforms Project (APDRP) being restructured to cover all district headquarters and towns with a population of more than 50,000

Allocation for Rajiv Gandhi Grameen Vidyutikaran Yojana (RGVY) to increase from Rs.3,000 crore to Rs.3,983 crore

26 coal blocks with reserves of 8,581 million tonnes and four lignite blocks with reserves of 755 million tonnes allotted to government companies and approved end users

Definition of specified end use to be enlarged to include underground coal gasification and coal liquefaction

Steel prices have shot up during the first three quarters of the current financial year mainly due to strong domestic demand and increase in cost of raw materials like zinc and ferro alloys as per the Economic Survey 2006-07. The price rise has been stronger in case of flat products where most of the key items have seen marked price rise during October 2006 compared to the same month a year ago. Simultaneously, the steel industry has witnessed robust growth for the fourth consecutive year in 2006-07; during April-December 2006-07, production of finished (carbon) steel has increased by 9.7 per cent on a year-on-year basis to reach 35.65 million tonnes. The consumption of finished steel at 31.45 million tonnes has been 9.8 per cent higher than that in the comparable period of the previous year and exports of finished steel during the nine-month period have gone up by 10.9 per cent to 3.50 million tonnes. Also, additional capacities of 4 million tonnes have been commissioned during the year.

The Budget 2007-08 has proposed to hike the allocation for developing highways by more than Rs 700 crore; the provision for the National Highway Development Programme has been proposed to be increased from Rs 9,945 crore to Rs 10,667 crore next year. Also, the finance minister has announced the setting up of a revolving corpus of Rs 100 crore to quicken project preparation for public private partnership (PPP) projects. While welcoming these proposals, the companies in road construction sector appear disappointed by the decision of not allowing duty-free import of construction equipment for other infrastructure projects that they undertake but being limited to only certain ADB and World Bank funded projects.

Domestic and international air passenger traffic has grown by 35.5 per cent during April-September 2006, according to the Economic Survey 2006-07. The survey indicates that while international passenger traffic has increased by 15.8 per cent, domestic air passenger traffic has posted a 44.6 per cent rise. In the same period, the air cargo market has recorded a growth of 12 per cent with international cargo carriage growing by 13.8 per cent and domestic cargo carriage by 8.7 per cent. During the year, the government to improve connectivity, has undertaken initiatives like awarding contracts for modernisation of Delhi and Mumbai airports to consortia led by the GMR and GVK groups, respectively. In addition, the Committee on Infrastructure approved the task force report for development of 35 non-metro airports which are to be modernised by the Airports Authority of India (AAI). During 2006, the government has issued no-objection certificates for the import or acquisition of 42 aircrafts by scheduled operators, 62 aircrafts by non-scheduled operators and 31 aircrafts by private operators, besides in-principle approval for 135 aircrafts granted to scheduled operators. During the year, the number of airlines operating in the country has also increased with at least two - Go Air and IndiGo - starting operations and private sector airlines have also introduced 22 new routes.

The union railway minister, Mr Lalu Prasad, has refrained from announcing any passenger fare hikes given the inflationary pressure building up in the economy. In fact, he has effected token reductions in passenger fares by up to 8 per cent. The fares of existing AC 3-tier and Sleeper coaches that have 64 and 72 berths, respectively, have been left unchanged but for passengers travelling on new-generation coaches that will have 81 (AC 3-tier) and 84 (sleeper) berths, a 4 per cent reduction has been announced and it would be up to 8 per cent for the 81-berth AC 3-tier and 102-seat AC chair cars in the lean season (January-April and July-September). Similar cosmetic reductions of Rs 1-2 for non-AC second-class passengers have been resorted to.

On a similar note, on the freight front, the Rail Budget has proposed a 5 per cent lowering of the tariff on diesel, petrol and ammonia and 6 per cent in the case of iron ore, limestone, dolomite and other minerals used by cement and steel manufacturers. Though, these are unlikely to translate into cheaper petrol or steel for consumers but, at best, they would marginally shore up the bottom-line of oil companies or restrain steel makers from announcing immediate price increases.

The overall finances of the country's largest transport organisation are robust. During the current fiscal year, the Railways' gross traffic receipts are expected to touch Rs 63,220 crore as against the originally budgeted Rs 59,978 crore. After deducting its various operating expenses (fuel, salaries, lease charges, etc), besides pension and miscellaneous expenditure, there would be a cash surplus of Rs 20,063.11 crore, up from Rs 14,709.79 crore in 2005-06. For the coming fiscal year 2007-08, gross traffic receipts are projected at Rs 71,318 crore (a Rs 8,098 crore jump over the revised estimate for 2006-07). While passenger revenues are slated to grow by Rs 2,675 crore to Rs 20,075 crore, those from freight would go up by Rs 4,644 crore to Rs 46,943 crore. The Railways are expected to register a cash surplus of Rs 21,578.45 crore during 2007-08. After forking out a dividend of Rs 4,572.54 crore to the central government as against Rs 4,242.26 crore in the current fiscal there would still be well over Rs 17,000 crore of internal resources to fund a proposed investment plan of Rs 31,000 crore. Other financing sources would include Rs 5,000 crore of borrowings through the Indian Railways Finance Corporation, Rs 00 crore under the Wagon Investment Scheme and Rs 240 crore to be raised by the Rail Vikas Nigam Ltd. The Railways' `operating ratio' (a broad efficiency indicator of amount spent for earning every rupee) is budgeted to be 79.6 per cent in 2007-08 as against this year's 78.7 per cent.

Provision for National Highway Development Programme (NHDP) to increase from Rs.9,945 crore to Rs.10,667 crore

Road-cum-rail bridge at Bogibeel ( Assam ), over Brahmaputra , to be taken up as a national project

Revolving fund with a corpus of Rs.100 crore to be set up to quicken project preparation

Fund to contribute up to 75 per cent of preparatory expenditure in the form of interest free loan to be recovered from the successful bidder.

Inflation

The annual point-to-point inflation rate based on wholesale price index (WPI) rose by 6.05 percent for the week ended February 17,2007 as compared to 6.63 per cent in the last week or at a lower rate of 4.13 per cent during the corresponding week last year.

During the week under review, the WPI declined by 0.3 per cent to 208.6 from 209.2 for the previous level (Base: 1993-94=100). The index of ‘primary articles’ group, (weight 22.02 per cent), declined by 0.4 percent to 215.0 from its previous week’s level of 215.8 mainly due to lower prices of ‘food article like fish, gram, fruits and vegetables, bajra and moong However, prices of arhar, barley, maize and wheat moved up. The price index of ‘fuel, power, light and lubricants’ group (weight 14.23 per cent) dwindled to 318.9 mainly due to lowering of the prices petrol, diesel oil . The prices index of ‘manufactured products’ group moved down by 0.1 per centto 181.8 from 182.0 which can be attributed to the dip in the rice bran oil, khandasari, sugar, cotton seed oil etc.. However, the rise in the prices of textiles, machinery and machine tools had a hardening effect in the prices index of manufactured products.

The latest final index of WPI for the week ended December 23.12.2006 has been revised upwards; as a result both, the absolute index and the implied inflation rate stood at 208.6 and 5.78 per cent as against their provisional levels of 208.0 and 5.48 per cent, respectively.

Banking

The central bank has been using the cash reserve ratio (CRR) as a tool to squeeze out liquidity from the banking system recently. The CRR has been hiked by 100 basis points in four phases in the past two months. The apex bank had withdrawn interest paid on eligible CRR balances maintained by scheduled banks with effect from June 24, 2006. Providing relief to bankers whose profitability was under pressure due to the tightening of liquidity in the system, the RBI has announced that it would resume the payment of interest to eligible balances (above 3 per cent) of CRR maintained by scheduled banks with the regulator. RBI will be paying 3.5 per cent interest for the eligible CRR balance from June 2006 to December 8, 2006, while 2 per cent interest would be paid for the period December 9, 2006 to February 16, 2007. Also, from February 17 until further notice, the central bank would pay 1 per cent interest on the eligible CRR balance. In addition, RBI has also decided to exempt those banks from payment of penal interest which have breached the statutory minimum CRR level of 3 per cent from June 22, 2006 to March 2, 2007 on account of CRR exemptions reckoned for computation of demand and time liabilities for CRR.

Giving some relief to the banking community, the RBI has provided an exemption from maintaining average CRR on a set of items qualifying for its liabilities. This exemption was effective from June 22, 2006, subject to the maintenance of statutory minimum CRR of 3 per cent on its total demand and time liabilities. In addition to this, transactions in Collateralized Borrowing and Lending Obligation (CBLO) with the Clearing Corporation of India (CCIL) would be exempted from maintenance of CRR.

Shamrao Vithal Co-operative bank, has completed the merger process of Karnataka-based Bangalore Cental Co-operative Bank (BCCB) with itself. As on September 2006 BCCB had a network of 11 branches in Bangalore with total deposits of Rs 140 crore and total advances of Rs 28 crore.

Kolkata-based Allahabad Bank has opened its first overseas branch in Hong Kong .

Financial Markets

The Sensex shrunk below the psychological level of 13,000 for the week ended 2 March 2007. The market declined amid high volatility. Before the market could overcome the pre-Budget blues, a disappointing Union Budget 2007-08 and weak Asian markets pushed the market lower.

The BSE Sensex shed 746.40 points for the week ended 2 March 2007, to settle at 12,886.13, compared with the previous week’s closing of 13,632.53 on 23 February 2007. The S&P CNX Nifty lost 212.20 points, to settle at 3726.75 compared with the previous week’s closing at 3,938.95.

The BSE Mid-Cap shed 198.65 points for the week ended 2 March 2007, to settle at 5,466.24 compared with the previous week’s closing of 5,664.89. The BSE Small-Cap shed 258.62 points, to 6,645.81, compared to the previous week’s closing at 6,904.43.

On 28 February 2007 (Wednesday), the day of the Union Budget, the 30 shares BSE Sensex tumbled 540.74 points, to settle at 12,938.09 on heavy selling across the board. Sensex suffered their biggest fall in eight months after 13 June 2006. Increase in taxes for cement, IT and construction firms and weak global markets caused the huge fall on the bourses.

An increase in dividend distribution tax impacted trading on the bourses, and the market tumbled soon after the announcement. The dividend distribution tax for corporates has been raised to 15per cent from 12.5per cent. No changes have been made in corporate tax. The 10per cent surcharge for firms with a taxable income of Rs 1 crore, or less, has been removed. The market was expecting abolition of 10per cent surcharge for all corporates.

On the flip side, there is no increase in the securities transaction tax (STT), on short-term capital gain tax and on long-term capital gains tax on sale of shares. Long-term capital gains tax remains zero. The market also expected an increase in STT. Marketmen also had apprehension of an increase in short-term capital gains tax to 12.5- 15per cent from 10per cent.

The Sensex, which had been on a downtrend ever since striking an all-time high (14,723.88) on 9 February 2007, rebounded with great force on Thursday (1 March 2007). Bargain-hunting for battered index pivotals and short-covering in the derivatives segment helped to reverse the downtrend. Most of the gains came in the second half of the day’s trading session, triggered by short-covering. Volatility was also at its best.

On Friday (2 March 2007), the Sensex gravitated below the psychological level of 13,000 after a late sell-off gripped the market. The 30 shares BSE Sensex lost 273.42 points (2.08per cent), to settle at 12,886.13, its lowest closing level since late-October 2006. Index of heavyweight Reliance Industries (RIL) dived and so did IT scrips, cement producers, banks and telecom shares.

PAN to be made sole identification number for all participants in securities market with an alpha-numeric prefix or suffix to distinguish a particular kind of account.

Mutual funds to be permitted to launch and operate dedicated infrastructure funds.

Short selling settled by delivery, and securities lending and borrowing to facilitate delivery, by institutions to be allowed.

Funds from National Small Savings Fund can be borrowed by India Infrastructure Finance Company Limited.

To facilitate creation of urban infrastructure, issue of tax-free bonds through State Pooled Finance Entities formed for raising funds for a group of urban local bodies to be allowed.

Rate of dividend distribution tax to be raised from 12.5per cent to 15per cent on dividends distributed by companies; and to 25per cent on dividends paid by money market mutual funds and liquid mutual funds to all investors.

The spot nifty closed at 3726 while March futures was at 3690.30 and April nifty at 3696.20.

Under the weekly T-Bill auctions, the RBI mopped up Rs.6250 crore (MSS worth Rs.1500 crore) and Rs.2000 crore (MSS worth Rs.1000 crore) through 91-day T-Bill and 364-day T-Bill. The cut-off yields for the 91-day and 364-day T-Bill were 7.4769per cent and 7.7334per cent respectively.

RBI has announced sale (re-issue) of "6.65 per cent Government Stock 2009" for Rs.6000 crore under the Market Stabilisation Scheme (MSS). This auction will be conducted through a price based auction using multiple price method on March 6, 2007.

The Government of India has announced the sale (re-issue) of "8.07 per cent Government Stock 2017" and "8.33 per cent Government Stock 2036" for a notified amount of Rs.4000 crore and Rs.3,000 crore respectively through a price based auction using multiple price method on March 9, 2007.

To beef up the liquidity management strategy, the RBI has decided to change the operational pattern of the Market Stabilisation Scheme (MSS) and Liquidity Adjustment Facility (LAF). For the MSS, the RBI will use a mix of Treasury bills and dated securities in a flexible manner, keeping in view the capital flows in the recent period, the assessment of volatility and durability of capital flows, and the paramount importance attached to liquidity management in containing inflation. The RBI would, subject to variations in liquidity, announce every Friday the possibility and the quantum of MSS issuances for the succeeding week. These announcements would cover issuances of Treasury Bills and dated securities under MSS.

On a review of the liquidity condition, the RBI has decided that in view of the enhanced MSS programme being put in place and the need to restore LAF as a facility for equilibrating very short-term mismatches, the RBI would modulate the liquidity it absorbs through the daily reverse repo auctions. Accordingly, starting March 5, 2007, daily reverse repo absorptions would be limited to a maximum of Rs.3,000 crore each day comprising Rs.2,000 crore in the First LAF and Rs.1,000 crore in the Second LAF. In case of partial rejection of bids, allocations would normally be made proportionately on a pro-rata basis.

RBI has exempted the banks from maintaining average CRR on liabilities in the following four categories - liabilities to the banking system in India , credit balances in ACU (USD) Accounts, transactions in CBLO with CCIL and Demand and Time Liabilities in respect of their Offshore Banking Units (OBUs). However, this exemption will be subject to the maintenance of statutory minimum CRR of 3per cent on the total demand and time liabilities.

During the week, the weighted average call rates during the period ranged between 6.07per cent and 6.22per cent, while weighted average repo rates ranged between 5.78per cent and 6.12per cent and the weighted average CBLO rates ranged between 5.77per cent and 5.93per cent. The average volumes of Call, Repo and CBLO segments were Rs.11,113 crore, Rs.8,664 crore and Rs.17,251 crore respectively. The daily average outstanding amounts in the LAF (reverse repo) conducted during the period were Rs.23,762 crore. There was no resort to LAF (repo) operation during the week.

The weighted average YTM of G.S 2017 8.07per cent bond was 7.9430per cent on March 02, 2007 as compared to 7.9407per cent on February 23, 2007. The 1-10 year YTM spreads increased by 21 bps to 32 bps.

During the week, the rupee appreciated against dollar to Rs 44.17 but with PSU banks intervening in the market, the rupee sliped to Rs 44.30 but appreciated again to Rs 44.28. The six-month forward premia closed at 3.03per cent (annualized) on March 02,2007 vis-à-vis 3.22per cent on February 23, 2007.

Total value of trading at the Commodity Exchanges during the fortnight was Rs. 1, 42,583.72 crores. The value of trade since 1stApril, 2006 to 28th February, 2007 for the financial year 2006-07 was Rs. 33, 26,741.64 crores.

The domestic insurance industry while cheering the limits of tax deductions from Rs 10,000 to Rs 15,000 on buying health insurance policies has expressed its disappointment on lack of measures for promoting long-term savings in the Budget.

Insurance Regulatory and Development Authority (Irda) has asked life insurance companies to furnish their solvency ratio on quarterly basis. In the meeting held on February 1, 2007 it has been decided to move towards quarterly solvency ratio reporting besides the existing practice of annual reporting. In order to address the financial condition of the life insurance companies, there is an urgent need to move towards quarterly reporting as it help companies to plan their business well and also will enable them to move towards better management of capital.

Kumar Mangalam Birla has announced to raise its stake in his flagship company Hindalco Industries. Recently, the Tatas had raised their stake in Tata Steel by 3 per cent to 30 per cent. Whereas Reliance Industries Chairman Mukesh Ambani has announced an infusion of Rs 16,000 crore to scale up his holding by 4 per cent to 55 per cent.

Cellular service provider Aircel will go on an over $400-million pan-India network expansion to double its subscriber base of 5 million over 18-24 months. The company has a presence in nine telecom circles, and has obtained licences to launch services in the remaining 14 circles of the country.

Reliance Industries (RIL) is planning an aggressive drilling programme in the Mahanadi and Krishna-Godavari (KG) basins on the east coast, which is slated to begin in the first quarter of 2007-08.

The conversion price for the 12-crore preferential warrants in RIL to be issued to its promoters has been fixed at Rs 1,402 per share. The Chairman, Mr Mukesh Ambani, and others will be spending Rs 16,800 crore if they decide to convert all the warrants issued to them within 18 months. This will also increase their stake in RIL from 50.6 per cent to 55 per cent. Acording to the board decision of February 24, the promoters will pay up 10 per cent of the price immediately upon being allotted the warrants, and the remainder when the promoters decide to convert their warrants into shares within a period of 18 months from the time of allotment.

Japan

’s Nissan Motor Company has decided to make cars with Mahindra & Mahindra (M&M) and Renault of France. The consortium will invest Rs 4,000 crore in a tripartite integrated facility in Tamil Nadu to make passenger cars and utility vehicles. In equity terms, M&M will own 50 per cent in the venture, while Renault and Nissan will hold the rest. The plant, considered as largest investment in Tamil Nadu is coming up on a 1,100 cre site at Oragadam, near Chennai. The plant will have a production capacity of 400,000 units per annum. The unit, would provide direct employment to 5000 people.

The Tata group’s Amalgamated Plantations is looking at an “organised corporate farming” proposal that will leverage the country’s growing organized retail grocery business. The proposal is part of a reorganisation of Tata Tea’s plantation business. According to the company it is the country’s largest corporate owner of agricultural land with 24,000 hectares (nearly 60,000 acres) under its fold.

Holcim, the world’s second largest cement maker, consolidated its Indian operations by purchasing 11 per cent stake in Ambuja Cement India (ACIL) for Rs 526 crore. Holcim’s stake in ACIL increases to 78 per cent. Remaining 22 per cent is held by Gujarat Ambuja Cement. According to industry sources this indicated that Gujarat Ambuja would completely pull out of ACIL very soon. Through its stakes in Gujarat Ambuja and ACC, Holcim controls a fourth of the Indian cement market.

Maruti Udyog has registered domestic sales of 59,095 vehicles in February 2007, a growth of 61.6 percent over the corresponding month last year. During the month, Maruti’s volume in the domestic A2 segment grew by 79.6 per cent and the C Segment by 97.8 per cent compared to its sales in February 2006.

Telecom

The Department of Telecommunications (DoT) has relaxed the security norms to allow provision of mobile phone services to 500 meters of the country’s international borders. Till now, operators were barred from offering services up to 10 km from the international border of the country, and were required to obtain a clearance from the DoT and the home ministry for every single base station that was to be installed in the border areas, in view of security issues raised by various agencies.

*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.