Current Economic Statistics and Review For the Week Ended September 15

Characteristics of Household, Value of Assets and Aggregate Cash Loan Outstanding

Introduction

Agriculture plays a vital role in the overall economic and social well being of our country. As per the latest NSSO field study, in 2002 more than 73 per cent of the households in India ( 147.85 million out of 203.35 million) located in rural areas are engaged in one or the other way in agricultural cultivation and allied activities along with non-farm informal sector rural activities. Hence, it is imperative to have an insight into the lives of the rural people especially those of cultivators. The subject of farmers’ indebtedness has thus received utmost attention amongst policy planners since the inception of Reserve Bank of India in 1934. After independence, India undertook the arduous task of conducting nationwide field surveys called debt and investment survey since 1951. The Reserve Bank of India conducted the first two surveys in order to unearth the nature of the credit supply and demand in rural areas. The early two surveys conducted by RBI were confined to only rural areas. The first survey conducted for 1951-52 was known as All-India Rural Credit Survey and the second one conducted in 1961-62 was knows as the All-India Rural Debt and Investment Survey. National Sample Survey Organization (NSSO), a central government institution, has been conducting surveys on various facets of Indian economy viz., consumer expenditure, employment-unemployment, etc, on annual basis from 1951 onwards and they were well equipped with staff and expertise to conduct such surveys. Hence, it was felt that the decennial surveys of All-India Debt and Investment Survey should be conducted by them with the advice from RBI. It was so done from 1971-72 onwards. In that year, it was done along with their 26^th round survey, which covered mainly land and livestock holdings of the households. Moreover, from this survey onwards, it had been decided to include urban areas also in the All-India Debt and Investment Survey. However, data on urban areas were then not published due to some misgivings on the survey results. Subsequent to this third survey, three more decennial surveys have been conducted in 1981-82, 1991-92 and the latest being the 59^th Round survey conducted during January-December 2003. In addition, in the context of the crisis in the farm sector a special survey christened Situation Assessment Survey of Farmers conducted along with a special ‘Situation Assessment Survey of Farmers’ (SAS) were conducted with among other things separate focus on farmers indebtedness.

Objective

Main objective of the present study is to construct a picture of indebtedness state wise and regional basis by grouping together the available data in the all-India debt and investment surveys. Earlier papers in this series had covered the all-India picture. The study has been divided into three different parts and each part, into different sections, as follows:

Section 1 - Characteristics of Households, Aggregate Value of Assets and Cash Debt

Section 1-Value of Assets and Distribution According to Household Assets Holding Class

Part C – Household Borrowings and Repayments In India during 1.7.2002 to 30.6.2003

[Flow data as distinguished from stock data represented by select outstanding in the above parts}

Data limitation

NSSO publish their reports after conducting their survey by covering almost the entire geographic area of India . However, NSSO publishes data for 20 major states in case of rural areas and 21 states in the case of urban areas. Hence, the regional groupings suffers from the limitation of insufficient coverage of Union Territories which falls under different regions and data for all the smaller states with the exception of Assam are not covered in North-Eastern Region and Goa from Western Region because many ratios published by NSSO are too miniscule for these excluded regions to give any meaningful presentation. However, the aggregate data for all the areas were given in their Report No 500, which had been used for the present note. With a view to deriving the regional total, we have used the ratio estimates for states and in the process of rounding up at every stage of calculation the totals do not tally; we had to work out absolute numbers of estimated households which has given differing results depending upon column totals or row totals..

Definitions

Household: A group of persons who normally lived together and took food from a common kitchen was normally considered as a household

Cultivator Household: All rural households operating at least 0.002 hectare of land during the survey year 2002-03

Non-cultivator Household: All rural households operating no land or land less than 0.002

Agricultural activities: means cultivation of field crops, horticultural crops, growing trees or plantations such as rubber, cashew, coconut, pepper, coffee, tea etc. and animal husbandry, poultry, fishery, piggery, bee-keeping, sericulture, etc.

(ii) he is engaged in some agricultural activities on that specific land during the last 365 days

From this it follows that a person is a farmer only and only if he possess some land and engaged in agricultural activities on hat land during the preceding 365 days

It may also be noted that if the person engages in agricultural activities but not operating his land due to any reason, he is not considered as a farmer for the purpose of SAS survey.

Farmer Household: A household which has got at least one person as farmer as defined above is a farmer household as per SAS survey.

Household assets: The asset owned by the households, which have some money value. It can be physical assets such as land, machinery, durable goods, etc and financial assets such as cash, deposits and shares and as well as loans receivable. However, an asset does not include crops standing in the field and stock of commodities held for household consumption.

Cash loans: All loans taken in cash were considered as cash loans irrespective of mode of

repayment whether in cash or kind. However, in the case of SAS only loans outstanding at Rs. 300 or more are treated as loans.

A Brief Review of Compiled Data

Characteristics of Households

NSSO 59^th round survey estimates about 203 million households in India as on June 30,2002. Out of this, 148 million household or about 73 per cent lived in rural area as against 55 million household or 27 percent belong to urban areas. Amongst rural households, 88 million households or 60 percent were cultivators. Other 40 per cent of households were non-cultivator households engaged as agricultural labourers, artisans, etc. As against this in urban areas, self-employed households consist of 36 per cent households the remaining were classified as others includes regular wage/salaried household, casual labour etc.

A region-wise analysis, reveals that the Southern Region, consisting of Andhra Pradesh, Karnataka, Kerala, Tamil Nadu, Pondicherry and Lakshadweep accounts for 26.2 per cent households followed by Central Region with 22.9 per cent which consists of Chattisgarh, Madhya Pradesh, Uttranchal and Uttar Pradesh.Western Region consisting of Goa, Gujarat, Maharashtra, Dadra and Nagar Haveli and Daman and Diu accounts for 15.2 per cent of total households (Table 1). The Eastern Region possessed about 20.6 per cent of total households though it includes states like Bihar, Jharkhand , Orissa , West Bengal and Sikkim . Northern and North-East Regions have a low household concentration.

Comparatively rural areas of Western (59 per cent) and Northern (66 per cent) Regions are the least populated as far as households are concerned as these regions include Maharashtra in the case of Western Region and Delhi and Chandigarh in case of Northern Region (Table 2). Similarly, urban areas of Delhi were heavily populated with 85 per cent of households in Northern Region followed by Maharashtra with 43 per cent of urban households in the Western Region (Table 3).

Incidence of Indebtedness

Incidence of indebtedness i.e. number of household reporting cash borrowing to total number of households as per NSSO 59^th survey for all-India works out to 24.1 per cent (Table 9). Among regions, Southern Region with 35.2 percent tops the list of Incidence of Indebtedness. All the states in this region had high percentage of IOI ranging from 27.1 per cent in case of Karnataka and about 39 per cent in case of Andhra Pradesh and Kerala. Incidence of Indebtedness among all other regions is less than the all-India figures (Table 9).

The IOI in the rural India at 26.5 per cent is higher than that of urban India at 17.8 Among the regions rural areas of Southern Region states except Lakshadweep have got IOI ranging from 31 to 42 per cent, which is the highest among all other states except Rajasthan in Northern Region. IOI of Rajasthan works out to be 33.8 per cent (Table 9). Even among IOI in urban areas southern states are the most indebted household states (Table 9).

With in the rural areas cultivators of Southern Region states and that of Haryana and Rajasthan in Northern Region and Cultivators of Maharashtra and Gujarat in Western Region generally enjoyed high credit facilities.

Small states of North-Eastern Region and Eastern Region states except Orissa enjoyed comparatively low credit facilities than that of All-India (Table 9)

Incidence of Financial Exclusion

Financial exclusion is the obverse of financial inclusion or indebtedness. Table 4 throws some startling information on financial exclusion and financial indebtedness among farmers and cultivators. The number of rural households according to the usual decennial survey and the situation assessment survey were almost the same. It also reveals that there is not much change the estimated number of households of farmers and cultivators along the states and different regions. However, the numbers of indebted farmer households are more than the cultivator households as revealed by 59^th round AIDIS survey and situation assessment survey of farmers, which in other words means financial exclusion of farmer household is less severe than that of cultivator households if one assumes all households need some kind of financial assistance. Financial exclusion of farmers at all-India level works out to be 51.3 per cent, which is much less than that of cultivators at 70.3 per cent (Table 4). Financial Exclusion is the least in the case of Southern Region states and the highest in North-Eastern Region states. All cultivators in Eastern Region states except West Bengal have a value of financial exclusion greater than that of all-India.

Value of Household Assets

Total value of assets as on 30.6.2002 as per 59^th round survey works out to be Rs. 62,42,189 crore with an average value of assets per households of Rs.3,06,967 (Table 1) . Rural areas’ with an asset value of Rs. 39,27,062 crore forms 63 per cent of the total all-India assets value (Table 5) and Urban areas’ asset value at Rs. 23,15,127 crore forms about 37 per cent of the total (Table 6). In rural areas, ‘cultivator households’ possess about 5 times asset to non-cultivator (Table 5). In Urban areas, ‘self-employed households’ possess 48 per cent of the household assets and ‘others’ remaining 52 per cent (Table 6). Among regions, Southern Region, Central Region and Northern Region together possess more than 68 per cent of the assets. However, Gujarat and Maharashtra with assets values of Rs. 9,62,542 crore or 15.4 per cent and Rs 6,73,110 crore or 10.8 per cent of the total all India asset value were the richest in the country. But in rural areas, households in Punjab (average holdings of Rs.9 lakhs) and Haryana (average holdings of Rs.7 lakhs) top the list. Moreover, cultivator households of Northern Regions except those in Himachal Pradesh , Jammu and Kashmir and Rajasthan are generally worth more than Rs.10 lakhs.

Outstanding Cash Loans

Total outstanding amount of cash loans as on 30-6-2002 is Rs. 1,76,793 crore. The average amount of cash loan per household in rupees works out to be 19,310(Table 1). The outstanding mount in rural area at Rs. 1,11,466 crore (Table 7) and in urban area it is 65,326 crore(Table 8). The respective average amount of cash loans per households works out to be Rs. 7,539 and Rs. 11,771. Among regions, Southern Region and Western Region with an average borrowing of Rs. 27,381 and Rs. 26,107 respectively, were the most indebted regions as on 30-06-2002 (Table 1). North-Eastern Region and eastern Region states and Central Region states except Madhya Pradesh were below all India average. Average outstanding cash loans in rural India at Rs. 7,539 were less than that of Rs. 11,771 in urban areas.

Both rural and urban household of Southern and Western Regions states had an outstanding more than that of all – India level.

Summing Up

The US Commerce Department has announced a temporary rate structure of anti-dumping duty on exports of frozen warm water shrimp from India , Brazil , Ecuador , China , Thailand and Vietnam . The final duty structure will be announced after reviewing the objections from the exporters and hence the new duty structure would be applicable from August 2007. The weighted average of the duty for the Indian export industry has increased from 10.17 per cent to 10.54 per cent. While the duty for Liberty Group has been cut to 4.03 per cent from the current 10.17, that for Falcon Marine has been hiked to 11.09 per cent from previous level of 10.17 per cent. For 44 companies that did not apply for the review, the duty has been raised to 10.54 per cent (10.17) and Hindustan Lever, the new rate has been fixed much higher at 24.52 per cent (15.36). However, for another 16 companies, it has been increased even more steeply to 82.30 per cent from earlier10.17 per cent.

Cotton Corporation of India has revised the estimates of cotton output for cotton season (October-September) 2006-07 downward to around 26-26.5 million bales (one bale=170 kg) from earlier projection of 27 million bales on account of expected lower output in states like Gujarat, Punjab, Haryana and Rajasthan. The output in these states is likely to get spoiled due to unseasonal rains towards the end of the growing stage. However, Cotton Advisory Board (CAB) has stuck to its projection of 27 million bales, which has been 10.65 per cent higher than the actual production of 244 lakh bales last year. The board further has estimated cotton exports to increase marginally by 1 lakh bales to 48 lakh bales despite China’s failure to unveil import quota for this year and a good crop report from the Us and also has pegged carry-over stocks of cotton at 44 lakh bales (1 bale = 170 kg) in 2006-07, down by about 22 per cent from 56 lakh bales of the last year due to higher domestic consumption.

As per the US Foreign Agricultural Services attaché domestic consumption of cotton is set to rise by 3.2 per cent to 18.3 million bales for the crop year ending on July 31,2007 which has been 1.7 per cent higher than the US Department of Agriculture’s projection of 18 million bales Strong economic growth, rising consumer incomes, an expanding middle class, increased demand from domestic textile firms and rising exports of the fibre are some of the factors that have triggered cotton consumption in the country. Concomitantly, exports have been projected to increase by 2.4 per cent to 4.3 million bales from attaché’s previous projection, according to the report.

The government has decided to remove the quantitative restrictions placed on the export of kabuli chana. The department of commerce has already lifted the ban on the export of dollar chana in February 2007. A complete ban on export of pulses was imposed in June 2006 to curb the inflationary pressures.

According to the agricultural scientist from Punjab agricultural university, wheat yield in Punjab is likely to improve significantly, due to favourable weather conditions comprising of minimum temperature remaining slightly higher than the average level and several spells of rain in February 2007 facilitating in maintaining sufficient moisture content and leading to starch depositing in the plants. Punjab had attained the highest wheat yield in the year 1999-2000 of 4,696 kg per hectare. However, thereafter, the state was unable to maintain the high wheat yield, which started declining from 2000-2001 at 4563 kg per hectare, 4532 kg per hectare in 2001-02 and 4200 kg per hectare in 2002-03.

Oilmeal Exports (lakh tonnes)
	Apr-Feb 2006-07	Apr-Feb 2005-06	Percentage Variation
Soymeal	31.0	27.0	14.8
Rapeseed meal	8.5	4.9	73.7
Castor meal	1.8	1.9	-3.7
Ricebran extraction	2.0	1.2	73.9
Source: Media Source

According to the solvent extractors’ association of India (SEAI), the exports of oilmeals have declined by 10.5 per cent to 5.92 lakh tonnes in February 2007 compared with 6.62 lakh tonnes in the same period a year ago, owing to a 10 per cent slump in imports by China . Despite the monthly decline, the exports have surged by 22 per cent to 44 lakh tonnes during April-February 2006-07 as against 36 lakh tonnes during the same period in 2005-06. The extraordinary gain in oilmeals exports has been attributed to outstanding performance in April 2006 (recording a gain of 81 per cent), September 2006 (105 per cent), October 2006 (59 per cent) and November 2006 (81 per cent).

The central government has decided to import wheat in 2007 as well, if the government agencies fail to procure adequate quantity of wheat required for its buffer stocks. India has resorted to wheat import (5.5 million tonnes) in 2006 to support the plummeted stocks of wheat in the central inventories and even had allowed private trade to import wheat duty-free.

The country's sugar output during the sugar season (October-September) 2006-07 is likely to be much more than the central government’s initial projection of 227 lakh tonnes. The 227 lakh tonnes of production comprise of 70 lakh tonnes each in Maharashtra and Uttar Pradesh, with Tamil Nadu (23 lakh tonnes), Karnataka (19 lakh tonnes), Andhra Pradesh (14 lakh tonnes) and Gujarat (13 lakh tonnes) being the other major contributors. According to experts, the total sugar output during current season is likely to be around 240-250 lakh tonnes with production in Maharashtra and Uttar Pradesh reaching 77 lakh tonnes and 75 lakh tonnes, respectively.

The National Agricultural Cooperative Marketing Federation (Nafed), country’s main mustard procurement agency, has decided to start procurement of 2006-07 rabi mustard crop from March 10, 2007, in the regions where the price is lower than the minimum support price (MSP) of Rs 1,715 per quintal. Nafed is expecting to procuring 20 lakh tonnes mustard in 2007 at MSP. It had procured 21 lakh tonnes mustard in 2005-06 (at an MSP of Rs 1715) and 20.93 lakh tonnes in 2004-05 (at an MSP of Rs 1700).

Infrastructure

The government has decided to hike charges imposed on airlines for peak-time operations at the three major airports - Mumbai, Delhi and Bangalore reasoning that the burden would be offset by incentives offered during non-peak hours. According to the civil aviation minister, Mr. Praful Patel this is only a temporary towards decongestion till the time that the infrastructure to expand capacity of airports to handle heavy traffic is set up.

This decision can lead to a rise in airfares during peak hours because airlines are likely to pass the burden to customers.

Airport Infrastructure

According to a financial viability study by IL&FS, the Rs 9,000 crore second airport project for Mumbai, promoted by the Maharashtra state government and cidco, is one of the most lucrative projects financially with a 17.5 per cent internal rate of return (IRR). The study says, by 2030 Mumbai Metropolitan Region (MMR) will generate air traffic of 90 million passengers per annum. Sahar and Santa Cruz airports, when used to their optimum capacity, will not be able to handle traffic beyond 40 million passengers per year, thus explaining the need for a second airport in MMR considering the 50 million passengers who would have to be catered to. When the second airport reaches its optimum capacity, the IRR will reach around 17.5 per cent. The sensitivity analysis also shows that even if the present trend of rising cement and steel prices continue, or some unseen events escalate the cost of project abnormally or actual passenger traffic doesn't grow to the projected levels, even then the IRR for project will not fall below 13 per cent. Cidco has already submitted this report to the civil aviation ministry and hopes to get the project cleared within a month or two. The airport will be a greenfield project with private partners holding 74 per cent equity and airport authority of India and cidco holding remaining 26 per cent, equally. The project will be spread on over 2,058 hectares of land; Cidco has 1,150 hectares in its possession and nearly 450 hectares of land is owned by various other state government agencies, for which a transfer process for which will be initiated soon while rest will be acquired after the Union Cabinet formally approves the project. in the project is expected to be completed by 2013 or 2014.

The power crisis currently faced by Maharashtra is expected be eased by means of the Dabhol power project. The first phase of the project with an installed capacity of 700 MW is ready but due to shortage in gas supplies is currently generating only about 350 MW of electricity using naphtha. Once the second and third phases are complete, the Dabhol plant would be in a position to generate a total of 2,150 MW of power.

In a move to minimise the power crisis in Maharashtra , the central government has agreed to provide an additional 0.3 million metric standard cubic meter per day (mmscmd) to the Maharashtra State Power Generation Company (Mahagenco) during the April-June 2007 as compared to the current level of 2.5 mmscmd. This will help Mahagenco generate 400 MW of power from its gas-based Uran power project, which has a generation capacity of 854 MW but has been running below capacity and generating 300 MW due to gas shortages; it received only 2.5 mmscmd of gas against the linkage of 3.5 mmscmd. The petroleum ministry has agreed to organise a gas swap between rashtriya chemicals and fertilisers (RCF) and Mahagenco. In the face of severe shortages, Maharashtra has also entered into a temporary arrangement to buy power from Haryana and Andhra Pradesh, but this power is costly.

Hydro-power Generation

A new technique for generating hydro-electricity is being developed; a pumped storage plant (PSP) which involves recycling of water between reservoirs. Surplus off-peak energy available in the grid (thermal or nuclear) is used to pump water from the lower reservoir back to the upper reservoir for generation during peak hours. The central electricity authority (CEA) study has identified 56 sites in India with a combined capacity of 94,000 MW where the system can be installed. The process involves an investment of about Rs 6 crore per MW, compared with Rs 5-5.5 crore required for a conventional hydro power plant. The nuclear power corporation of India ltd (NPCIL) and Tehri hydro development corporation (THDC) have recently set up a joint venture company for implementing PSP schemes. However, it will take another five years before the technique is implemented across the country. The system helps in meeting peak demand and provides a balancing load to base load thermal power plants during off-peak hours (base load thermal power plants operate continuously, stopping only for maintenance or unexpected outages). The western region of India (Gujarat, Maharashtra and Madhya Pradesh) has 25 sites with a capacity of 38,000 MW where the system can be set up, according to the CEA study. The northern region has 7 such sites with a capacity of 13,000 MW while the southern region has 8 sites with 16,600 MW capacity. In the east, 6 sites with a capacity of 9,000 MW have been identified. The sites in Maharashtra which are being considered for PSPs are Humbarli and Malshay Ghat. The estimated cost for these projects is Rs 1,600 crore and Rs 1,400 crore, respectively. Neighboring states, like Bhutan and Nepal , have also shown interest and approached the Indian government for PSP schemes. Nepal has 3 such projects with 1,300 MW capacity.

Steel

A report by Boston Consulting Group titled, “Beyond the Boom: The Outlook for Global Steel”, reveals that consolidation phase in the steel industry is likely to have a stabilising effect on the industry with the emergence of 10 large players controlling almost 35 per cent of the global market by 2010. The consolidation would mean that there would be three or four players producing more than 80 million tonnes and another five or six players producing between 40 million and 60 million tonnes of steel annually. Meanwhile, as large players could prevent sharp fluctuation in prices through production cuts, it would also open the doors for further mergers and acquisitions where a substantially large company would also be vulnerable to a take over bid. It has said that the trend toward inter-regional mergers is expected to continue with steel makers in developed countries using facilities in low-cost countries to make structural improvements in their upstream cost positions. The report predicts that the world-wide steel industry will achieve significant growth of 3-4 per cent per year through 2015 with installed capacity reaching 1.55-1.7 billion tonnes annually. For India the report has said that changes in the structure of global steel industry and increased domestic demand would benefit the country by way of increased investment in the sector. The country would also emerge as a major player in the mass market segment as global demand for steel would pick up on the back of a resurgence in the commodity sector. It states that India would need to increase its steel productivity at the rate of 7-8 per cent annually to sustain the growth in demand and also work towards improving technology and product quality. There is tremendous potential in the Indian steel industry because of the abundance of iron ore (6 per cent of world-wide deposits) and of coking coal (11 per cent of world-wide deposits).

Steel companies have rolled back the hikes announced on March 1, 2007 with the price of hot rolled coils cut by Rs 500 to Rs 27,000 a tonne. Sail, Tata Steel, RINL, Essar Steel, Ispat Industries and JSW Steel have announced a full roll back of Rs 300 to Rs 700 and of Rs 300 to Rs 500 on TMT bars and galvanised corrugated products, respectively. These companies have also rolled back the hike of Rs 500 on HR coils, though revised domestic prices continue to be lower than prevailing international prices. The government had asked steelmakers to cut prices to help curb the building inflationary pressures in the economy. This price cut has been announced at a time when hot rolled coil prices have firmed to $620 per tonne levels in overseas markets. According to stainless steel makers, the spiralling cost of nickel, the main raw material for stainless steel, had held them back from rolling back the price hike of up to Rs 10,000 a tonne. Although stainless steel accounts for just 4 per cent of total steel consumption in the country, a price hike directly affects the common man because it results in an increase in the prices of utensils. Steel prices in Asia and Europe have risen amid increasing demand and expectations of industry consolidation after mittal steel bought arcelor last year for $38.3 billion and tata steel acquired corus group plc for $12 billion in January 2007.

Cement

The Union Budget 2007-08 has increased the excise duty from Rs 400 to Rs 600 a tonne on cement sold at Rs 190, or more, for a 50 kg bag. For cement priced below Rs 190 a bag, the tax has been cut to Rs 350 from Rs 400 a tonne. Through such a dual tax mechanism, the finance minister, Mr Chidambaram, has tried to persuade companies to limit price increases. Cement manufacturers, however, have increased cement prices by Rs 12-15 for a 50 kg bag. On the ground that the new excise rates would impair their profit margins by as much as 25 per cent, the cement manufacturers’ association of India (CMAI) has refused to lower prices. Meanwhile, the government has reduced the import duty on cement to zero. Also, in his effort to contain 'profiteering', the commerce and industry minister, Mr. Kamal Nath, has indicated a possible ban on cement export. The cement manufacturers, though refusing to roll back the recent hike, have agreed to hold the current prices for the next one year and also to pass on the benefits, if any, given by the government in form of concessions to the consumers. The cement manufacturers have plans to invest around Rs 45,000 crore ($10 billion) to expand the installed cement producing capacity by 100 million tonnes over the next three years. Currently India 's cement producing capacity stands at 165 million tonnes a year as against China 's capacity of more than 1 billion tonnes.

Inflation

The annual point-to-point inflation rate based on wholesale price index (WPI) rose by 6.10 percent for the week ended February 24,2007 as compared to 6.05 per cent in the last week or at a lower rate of 4.18 per cent during the corresponding week last year.

During the week under review, the WPI rose by 0.1 per cent to 208.8 from 208.6 for the previous level (Base: 1993-94=100). The index of ‘primary articles’ group, (weight 22.02 per cent), declined by 0.5 percent to 213.9 from its previous week’s level of 215.0 mainly due to lower prices of ‘food article like gram, fruits and vegetables, urad, jowar,barley and condiments and spices. However, prices of arhar, fish, ragi moved up. The price index of ‘fuel, power, light and lubricants’ group (weight 14.23 per cent) remained stable at 318.9. The prices index of ‘manufactured products’ group moved up by 0.4 per cent to 182.5 from 181.8 in spite of dip in the prices of rice bran oil, khandasari, sugar, textiles,due to increae in prices of gingelly oil, gur, oil cakes,tyre cord, cement,steel wire, lead and zinc ingots vitamins and capsules etc.

The latest final index of WPI for the week ended December 30.12.2006 has been revised upwards; as a result both, the absolute index and the implied inflation rate stood at 208.7 and 5.89 per cent as against their provisional levels of 208.1 and 5.58 per cent, respectively.

Banking

With a view to control the concentration risk on the liability side of banks, the RBI has stipulated limits for inter-bank liabilities (IBL). As per the guidelines, the IBL of every bank should not exceed 200 per cent of its net worth as on March 31 of the previous year. However, the banks, who enjoy a capital to risk adjusted ratio (CRAR) of at least 25 per cent more than the minimum CRAR (9 per cent) i.e. 11.25 per cent as on March 31 of the previous year, have been permitted to have a higher limit upto 300 per cent of the net worth for IBL.

To achieve greater transparency RBI has asked the banks to provide a range of information to the borrowers, including reasons for rejecting any applications for any loans. The rule is now applicable to credit cards also. The instructions, which were applicable for the loan amounting Rs 2 lakh, will be applicable to all loan applications in respect of all categories of loans irrespective of the amount of loan sought by the borrower.

The RBI has eased the norms for import of rough diamonds from six mining companies, permitting authorised banks to allow advance remittance without limit, bank guarantee or standby letter of credit to diamond processing companies. The six companies include Rio Tinto, UK-based Diamond Trading Company Pvt Ltd, Russia ’s Alrosa and Gokharan, Endiama E P, Angola and BHP Billiton of Australia . However, this liberalisation will not be applicable to a public sector company or department or to any undertaking of either the central or state governments. The banks must, however, ensure that the importer is a recognised processor of rough diamonds as per a list to be approved by Gems and Jewellery Export Promotion Council. Besides, the banks should be satisfied about bonafides of the transaction and ensure that advance payments are made strictly as per terms of sale contract and also directly to the account of the company concerned. (ultimate beneficiary) and not through numbered accounts or otherwise. Banks must also ensure that remittances are not permitted for import of conflict diamonds.

Postal department has embarked on a novel scheme to disburse farm loans of six banks using the post office’s extensive network in Maharashtra . The Union Bank of India, Corporation Bank, Bank of Maharashtra, Dena Bank, Oriental Bank of Commerce and ICICI Bank are the 6 banks for which the postal department would do the due diligence of verifying an individual’s credential. In other words, post office would work on the “Know Your Customer” norm.

ICICI Bank has incorporated a new wholly-owned subsidiary, ICICI Holdings, and will be transferring its investments in insurance and asset management companies to the new subsidiary. ICICI Bank currently holds around 74 per cent stake in ICICI Prudential Life Insurance and ICICI Lombard General Insurance and 51 per cent in both Prudential ICICI Asset Management and Prudential ICICI Trust. All these investments would be transferred to ICICI Holdings at book value, which is currently pegged at Rs 1,950 crore.

Home loan lending major HDFC has raised its prime lending rate by 0.75 per cent to 13.5 per cent in a bid to manage its rising cost of funds. The floating rates for existing and new borrowers have been raised by 0.75 per cent, while fixed rates have been hiked by 1 – 2 per cent from 11 per cent with effect from March 1, 2007.

Government Finances

Indirect tax collections, during April-January 2006-07, have increased by 22.2 per cent amounting to Rs 1,90,424 crore as compared to Rs 1,55,859 crore during the corresponding period of the previous fiscal year. With excise collections have still lagging behind, the growth in indirect tax collection has sustained mainly due to the customs and service tax collections. The revenue though customs duties has witnessed a remarkable rise of 35.3 per cent totalling Rs 77,693 crore at the end of February 2007 as against Rs 57,434 crore a year ago. In the month February, customs duty collections have contributed Rs 6,821 crore, up by 46.2 per cent over Rs 4,666 crore in February 2006. Service tax revenue has seen an increase of 64.4 per cent at Rs 28,877 crore for the first ten months of the current fiscal year. For January, service tax collections have risen by 62.1 per cent to stand at Rs 3,203 crore against Rs 1,976 a year earlier. However the excise collections have continued to be a cause of concern for tax authorities. They have witnessed a small growth of 5.8 per cent till February 2007 to stand at Rs 1,01,571 crore as against Rs 96,029 crore in the corresponding period of the previous year. For the month of February alone, excise revenue has increased by a meagre 3.8 per cent to Rs 10,896 crore as compared to February 2006.

Financial Markets

Gremach Infrastructure Equipments & Projects Ltd is to tap the market between March 8- 19 2007 through issue of shares in a price band of Rs 72-86 per share.

The BSE Sensex settled with a marginal loss of 1.13 points, at 12,884.99, while the S&P CNX Nifty settled at 3,718, a loss of 8.75 points. On 5 March 2007, the BSE sensex fell by 471.09 points, to 12,415.04 as heavy selling continued for the entire day, following a global market meltdown. Experts opine that one of the reasons for the current sharp correction was due to Yen carry-trade unwinding. On the next day, the sensex jumped 282.05 points, to settle at 12,697.09, tracking a recovery across Asian markets. The short covering in derivatives also played a part in remarkable upsurge. However, a correction again set in with the sensex declining 117.34 points, to 12,579.75, after the government said it will consider banning cement exports if such a move could help bring down prices. The sensex jumped 469.60 points, to settle above the 13,000 mark, at 13,049.35, following strong rally in Asian markets. There was strong buying demand for battered blue-chips as well as a host of small-cap and mid-cap shares. The 30-share BSE Sensex lost 164.36 points, to 12,884.99, as the mood was dampened by rising inflation figures, and was not able to sustain the higher levels, succumbing to sales.

On 7 March 2007, MindTree Consulting settled at Rs 620.30 on BSE, a sharp premium of 45.88 per cent over the IPO price of Rs 425. The stock debuted at Rs 599. It also hit a low of Rs 575.20 and a high of Rs 678.80.

Aditya Birla group's Idea Cellular settled at a slight premium, at Rs 85.55, on Friday ( 9 March 2007). The stock made its debut on the Bombay Stock Exchange (BSE) and listed at Rs 90, against the IPO price of Rs 75. The stock also hit a high of Rs 94.25, and a low of Rs 84.

In a major development, Morgan Stanley, Citigroup and private equity fund Actis, have entered into agreements to buy 6 per cent stake in the National Stock Exchange (NSE) for undisclosed sums, the exchange informed. The deals will take foreign ownership of NSE to 26 per cent, the maximum allowed by Indian law, after NYSE Group Inc, Goldman Sachs, General Atlantic and Softbank Asian Infrastructure Fund paid $460 million for stakes totaling 20 per cent in January 2007. Morgan Stanley will buy 3 per cent, while Citigroup will take 2 per cent and Actis 1 per cent, NSE said in a statement.

Derivatives

The spot nifty closed at 3718 with nifty march future held at 3698.65, while April futures traded at 3703.95 and May at 3704. Interestingly, in the derivatives market, there is huge open interest in the futures segment and, as usual, very little liquidity in the options market.

Government Securities Market

RBI conducted the auction of 8.07 per cent 2017 and 8.33 per cent 2036 for a notified amount of Rs.4000 crore and Rs.3000 crore respectively. The cut-off yield of the 8.07 per cent 2017 and 8.33 per cent 2036 were 8.06 per cent and 8.40 per cent respectively.

RBI conducted the auction of 6.65 per cent 2009 for a notified amount of Rs.6000 crore under MSS. The cut-off yield of the security was 7.8670 per cent.

Ten State Governments have announced the sale of 10-year SDLs for an aggregate amount of Rs.2,283.71 crore through a yield based auction using multiple price auction method on March 13, 2007.

RBI has announced sale (re-issue) of 6.65 per cent 2009 for Rs. 2000 crore under the Market Stabilisation Scheme (MSS) on March 14, 2007.

During the week, the weighted average call rates during the period ranged between 5.30 per cent and 6.23 per cent, while weighted average repo rates ranged between 4.66 per cent and 6.06 per cent and the weighted average CBLO rates ranged between 4.58 per cent and 6.05 per cent. The average volumes of Call, Repo and CBLO segments were Rs. 12822.39 crore, Rs. 10374.38 crore and Rs. 21122.93 crore respectively. The daily average outstanding amounts in the LAF (reverse repo) operations conducted during the period were Rs. 2998.20 crores. There was no resort to LAF (Repo) operation during the week.

The weighted average YTM of 8.07 per cent 2017bond was 8.1114 per cent on March 09, 2007 as compared to 7.9430 per cent on March 02, 2007. The 1-10 year YTM spreads increased by 19 bps to 51bps.

RBI issued the prudential limits for Inter-Bank Liabilities (IBL) in order to minimize the risks on the liability side of banks. The limits prescribed are as follows: the IBL of a bank should not exceed 200 per cent of its networth as on 31st March of the previous year; the banks with CRAR above 11.25 per cent as on 31st March, of the previous year, are allowed to have a higher limit up to 300 per cent of the net worth for IBL; the above limits shall exclude collateralized borrowings under CBLO, IBL outside India and refinance from NABARD, SIDBI etc.; the existing limit on the call money borrowings prescribed by RBI will operate as a sub-limit within the above limits.

The Governing Council of the ECB has raised the minimum bid rate on the main refinancing operations, the interest rates on the marginal lending facility and the deposit facility to 3.75 per cent, 4.75 per cent and 2.75 per cent respectively.

After a gap of about four years, the finance ministry has once again decided to buy back government securities that are hardly traded in the secondary market. It has set aside Rs 2,500 crore in Budget 2007-08 towards premium payment while buying back illiquid g-secs and those with small outstandings. According to finance ministry officials, the primary motive was to engage in active debt consolidation in the g-sec market. “In consultation with the Reserve Bank of India , we will identify illiquid g-secs and check if banks and institutions holding them are willing to sell,” an official said. The ministry had, in 2002, undertaken a similar exercise. The idea then was to buy back government debt that had a coupon of 13-14 per cent and more. The exercise, however, met with limited success since banks were unwilling to part with high interest earning securities, despite being illiquid. The ministry still managed to buy back government securities worth Rs 14,000 crore by shelling out a premium of about Rs 900 crore. It, however, claimed the exercise was a no-profit, no-loss deal because the government saved a similar amount as it did not have to pay the high coupon over the balance tenure of the high-cost debt.

Bond Market

On December 12, 2006 Sebi authorized BSE to set up and maintain a corporate bond reporting platform to capture all information related to trading in corporate bonds as accurately and as close to execution as possible. It has now been decided that the NSE to also set up and maintain a similar reporting platform for corporate bonds. Information disseminated on the websites of BSE and NSE is to display the following essential data: Issuer Name, Maturity Date, Current Coupon, Last Price Traded, Last Amount Traded, Last Yield (annualized) Traded, Weighted Average Yield Price, Total Amount Traded and the Rating of the Bond.

Foreign Exchange Market

The six-month forward premia closed at 3.15 per cent (annualized) on March 09, 2007 vis-à-vis 3.03 per cent on March 02, 2007.

Commodities Futures derivatives

The Forward Markets Commission (FMC) has stated that real time trading in a commodity by opening the terminals of foreign commodity exchanges in India without the prior approval of the Central government or the FMC would be considered illegal. Despite the clarifications issued in the month of April 2006, real time trading in commodity derivatives is being conducted on foreign bourses. “It is reiterated and clarified once again that real time trading in a commodity by opening the terminals of foreign commodity exchanges in India without prior approval of the Central government or FMC, as the case may be, would be deemed as illegal,” the FMC stated in a release on Monday. It has also clarified that forward contracts, other than those that are (a) entered into between members of a recognised association or through or with such members in goods that are notified under Section 15; (b) complying with the bye-laws of recognised exchanges and (c) not in violation of any contract specification, would be considered illegal and void,the release said.

The India Pepper and Spice Trade Association (Ipsta) has come out against the wide disparity in pepper prices in the two major national exchanges and said that the crash in the market was without any fundamental change in the market situation. Ipsta president ML Parekh said that there was a difference of around Rs 8 per kg in the March contract of NMCE and NCDEX with the latter quoting higher for the MG-1 quality pepper being traded on both the exchanges. While the NMCE contract was to mature on March 15, that of NCDEX was to close on March 20. Highlighting this, some of the broker firms had indicated to traders that arbitrage would prove profitable. A case in point said a leading trader was that buying NMCE March contract and selling in NCDEX April contract would mean a profit of Rs 11. He felt that it was high time the regulator looked into the matter. On the delivery side too there were issues. Parekh said that NCDEX with large volumes traded daily had a stock of 4,473 tonne and its warehouses were full. After delivery, it would take another two to three days for demat. The exchange opened a new warehouse in Alappuzha recently and of the 25 truck loads sent, hardly six had been unloaded. Pepper lying outside could lead to shrinkage of around 300 gm per bag, causing hardships to the sellers. The Alappuzha warehouse came outside the 50-km limit fixed and so would mean additional transportation expense. There were also issues regarding the quality of the pepper lying in the designated warehouses of one of the exchanges, he added.

In order to facilitate further development of the commodities derivative market, Forward Markets Commission (FMC) has requested the Reserve Bank of India (RBI) to consider allowing non-resident Indians (NRIs) to invest in exchange traded commodities derivative contract. This, if allowed, will be similar to the manner NRIs invest in exchange traded derivative contracts in the securities market as approved by Sebi, according to FMC website.

Meanwhile, the FMC has directed the national exchanges that while the exchange may continue to define slabs of turnover with respect to transaction charges, the concessional transaction charges should be charged only on the incremental volume and not on the entire volume/turnover These directives would be made applicable with effect from April 1, 2007.

Red Chilli LCA 334 (Pala) futures prices on NCDEX platform hit 4 per cent lower circuit on Thursday on heavy selling pressure from market participants following reports of improved supply of fresh crop in Andhra Pradesh. On NCDEX, red chilli March 2007 contract was down Rs 270 at Rs 4,410 per quintal over previous day while June and July 2007 contracts were down Rs 232 each at Rs 4,353 and Rs 4,451 per quintal, respectively. Total Open Interest was 15,80 tonne while total volume in all the contracts was 31170 tonne. Total turnover was Rs 136 crores.

The coffee futures launched by MCX on January 29 has not seen active participation of major players so far and trade sources attribute this to low limits on net open position towards near-end month delivery coupled with higher grading charges.

External Sector

India

's share in world merchandise exports has crossed the 1 per cent mark and continues to stay at that level. It had touched 1 per cent of global exports in 2005, and in January-August 2006, the share continues to be above 1 per cent. Considering the current performance of the industry and the government policies as well as external factors like improved global growth and recovery in global trade aided the growth. The government has set a target of achieving 1.5 per cent of total world exports by 2009. The latest Economic Survey shows that this share had been stagnating for the past few years and stood at 0.7 per cent in 2001. It stabilised at 0.8 per cent between 2003 and 2004. The country could increase its share of global merchandise exports as domestic exports grew by more than double the rate of growth in world exports since 2005.

IRDA has decided to provide exemption up to a total annual premium of Rs 10,000 on all the life insurance policies held by a single individual from the requirement of recent photograph and proof of residence.

IRDA has warned that some of the development officers and agents of Life Insurance Corporation of India (LIC) are promoting their Unit Linked Insurance Product ‘Money Plus’ claiming to offer astronomical returns and guaranteed benefits at the end of specific periods. The authority has cautioned members of the public not to get carried away by such unapproved sales presentations being circulated in the market.

Canara Bank, Oriental Bank of Commerce and the insurance arm of HSBC have signed a memorandum of understanding to set up a life insurance venture. As per the agreement, Canara Bank will hold 51 per cent of the stake in the new venture while HSBC and OBC will hold 26 and 23 per cent respectively. The new life insurance company will have a paid up capital of Rs 325 crore.

Shareholders of Corus Group Plc agreed to Tata Steel Ltd’s 6.2 billion pound (US$ 12 billion) takeover of the UK steelmaker, sealing the largest foreign acquisition by an Indian company. Investors representing 97 per cent of the shares backed the purchase. The acquisition is scheduled to take effect on April 2 and Corus share will stop trading on exchanges on March 29, 2007.

NatSteel Asia Pte Ltd, the Singapore-based subsidiary of Tata Steel has acquired two new steel-bar rolling plants in Vietnam for $41 million as part of strategy to expand in the Asia-Pacific.

The boards of Reliance Industries (RIL) and Indian Petrochemicals Corporation (IPCL) have approved the merger between the two companies at a swap ratio of 1:5. This means IPCL shareholders will get one share of RIL for every five held by them. Reliance and IPCL also approved an interim dividend of Rs 11 and Rs 6 per share respectively. The appointed date of merger of IPCL with RIL is April 1, 2007, subject to approvals from the courts and other regulatory authorities.

Reliance Industries has diverted its overseas oil and gas projects into a separate wholly-owned company based in Dubai and is looking at a tie-up with ONGC Videsh to jointly bid for oil and gas opportunities abroad.

Even before the proposed union of IPCL with RIL is approved by the board, IPCL is targeting a 44 per cent reduction of its staff through Voluntary Retirement Scheme involving a payout of anywhere between Rs 400-600 crore. About 4,000 of the 9,000 employees of IPCL are expected to prefer the scheme by the end of March 2007. The process is already underway. IPCL is offering a VRS compensatory package of Rs 10 lakh to Rs 15 lakh to its employees.

Mahindra & Mahindra (M&M) has obtained the controlling stake in Punjab Tractors Ltd (PTL), the fourth largest tractor firm, outbidding Hinduja group firm Ashok Leyland. M&M revised its bid of Rs 340 a share to Rs 360. The acquisition will increase M&M’s market share to 40 per cent from 30 per cent now. M&M has acquired the 43.5 per cent stake from private equity fund Actis and the New Delhi-based Burman family. Post-acquisition, M&M will launch a 20 per cent mandatory open offer for retail shareholders of PTL.

Tata Motors plans to launch its highest selling small car Indica on the Elegante platform, which is expected to hit the market in two years. Elegante would be the first car from the Tata Motors stable to carry a six speed manual and automatic gearbox, along with the V6 petrol power train unit.

Oil India has lined up over $2billion in the next five years to extend its oil and gas assets overseas. About 20 per cent of this investment will be used to finance its entry into the downstream sector.

The Institute of Chartered Accountants in England & Wales (ICAEW) is to become the first UK accountancy professional body to deliver its ACA qualification in India . Under an agreement with Tata Sons, the ICAEW will initially train 49 students who are being recruited into the Tata Graduate Accounts Trainee (GAT) programme from India ’s top universities, into 7 Tata Group companies.

Information Technology

WNS Holdings, a $300 million BPO services provider, has acquired Bangalore-based knowledge processing firm (KPO) Marketics Technologies for $65 million (about Rs 290 crore) in cash. The acquisition is expected to enhance WNS’ Knowledge Services business, which provides market research, business and financial research and analytics services.

*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.