Current Economic Statistics and Review For the Week 
Ended March 24, 2007 (12^th Weekly Report of 2007)

Theme of the week:

Investment Incentives and Social Security Measures
For Senior Citizens*

Though, social security measures as prevalent in the developed countries hardly exist in India , some system has got evolved over these years. The government sector, which is covered under the pension scheme, accounts for only a small percentage of the total population. For the employees in the organised sector, there is the contributory provident fund, which serves as a substitute for the government pension scheme. For the unorganised sector, the government has been carrying out various measures and has also been endeavouring to make the effort more comprehensive. Most of the ministries have offered schemes which would be beneficial to the older people and which would increase their convenience and comfort. Also, for the destitutes and those without assured streams of incomes, government has instituted some policies wherein they are provided with some income.

The need for more comprehensive and holistic approach plan towards social security has been gathering momentum as a number of pointers indicate the need such as increasing demographic pressures, changes in family system and role of women, and increasing cost of living concomitantly insecurities relating to incomes.

Most of the social security measures have been operated by the government, but in the recent years, some of the private entities have also began offering a variety of pension plans for different sections of society. 

However, the pension reforms which have been envisaged are yet to be executed which would be most comprehensive measure ensuring pension for all segments of society.

Demographic Pressures

India is expected to derive the benefits of demographic dividend with the proportion of the working population (15-64 years) rising from 62.9 per cent in 2006 to 68.4 per cent in 2026. Even so, simultaneously the number of elderly will also go up. As per the National Commission on Population (2006), the population above 65 years is expected to rise from 56 million in 2006 to 66 million in 2011 representing around 5.5 per cent of the total population. Twenty years ahead, in the year 2026, it is estimated that the senior citizens population would reach 116 million (8.3 per cent of the total population).

The population census data show that the life expectancy at birth has increased from 57.7 years in 1991 to 62.3 years in 2001 for male members and from 58.7 years to 65.3 years for female members. The expectation of life at 60 has gone up much faster, from 14.5 years in 1991 to 17 years in 2001. It is found that there are about 70 million people over 60 years of age in India but only 10 per cent of them have their own income; the other 90 per cent, not having built assets for earning income after 60, have to depend on transfers from their children or other sources (Subhedar 2004).

Looking at it differently, as per the study on World Population Ageing 1950-2050, published by United Nations (2002), the total dependency ratio in the case of India is expected to fall dramatically over the next 20 years (2005 to 2025) and thereafter increase in the next two decades. This fall, however, is mainly due to the demographic transition of the country in terms of lower birth rate and the faster rate of children entering into the earning-group category of the age 15 to 64 years. On the other hand, the proportion of old-age dependence ratio would continuously rise but rather sharply after 2025 (Table 2).

Health Awareness: Longevity

            Thanks to health awareness campaign, a recent survey says by 2050, Indians may live as long as Americans. The average Indian can expect to live up to the age of 75. Life expectancy at present is 64 years. This is the encouraging news given by the Population division of the UN Department of Economic and Social Affairs. However, it is also a cause of concern, as the ageing population has to be taken care of.  By 2050, the number of Indians aged above 80 will increase more than six times from the current number of 78 lakh to nearly 514 lakh.

Changes in Family System

The traditional social security measures which not only cared for their old age but also when they were sick or disabled. This system has been the hallmark of oriental culture, especially of India . But that has undergone a change with the shift taking place towards nuclear families due to a number of factors such as migration, shortage of dwellings, adoption of small family norms and changing roles of women; above all, sense of independence amongst the youth is driving the nucleasisation of families.  As a result, the government has to assume the role of taking care of older people.

Indian Scenario

Although there is evidence of social security existing as early as the post-Vedic period in ancient India as seen in the role of guilds [Rajan 1999] in modern times it is in the 1950s, with the Constitution endorsing the provision of social security, that marks the beginning of a modicum of social security system in India.

Legislative Enactments

Some of the important areas where legislation as well as institutional mechanisms provided were: health insurance, worker protection, and unemployment relief. It is important to note that social insurance principles were accepted as the main basis for social security legislation, directed mostly at workers in the organised sector. Among these are the Employees’ Provident Fund Act, 1952, supplemented by the Family Pension Scheme in 1971 and the Deposit-Linked Insurance Scheme in 1976, Maternity Benefit Act, 1961 and Payment of Gratuity Act, 1972. Measures in the nature of survivor benefits such as accident insurance, health insurance and crop and cattle insurance, either through voluntary commercial insurance, or through low-cost group insurance for several occupational categories or through life and general insurance subsidised by government have been extended since the 1970s and 1980s.

Role Played by State Governments

As part of the larger net that is termed anti-poverty measures, almost all states in the country have old age pension (OAP), for which all persons above 65 years who may also be old, as well as poor and infirm, are eligible. It is important to note that these old age pensions (above the age of 65) are not subject to the employment status of the old persons, and hence, covers all the older people above that age provided they are able to satisfy the conditions and criteria. Elderly destitute widows alone are considered under the OAP, but in Kerala, even young widows are considered eligible under this scheme. Apart from this some states, such as Andhra Pradesh, Gujarat , Kerala and Tamil Nadu have special pension schemes for agricultural labour. The coverage of these pension schemes varies from state to state mainly because of the ceiling on the maximum number of persons to be covered, imposed explicitly or implicitly, by the state governments out of financial considerations. In the case of Tamil Nadu and Kerala, these quantitative ceilings have of late been totally removed. Since the 1980s many states have extended social security arrangements to the physically and mentally challenged/disabled as also to workers in the main occupational group, namely, agricultural labourers, who are classified as the lowest in the income ladder.

For the welfare of the aged, the ministry of social justice, formerly social welfare, has set up an inter-ministerial committee on welfare of the aged to suggest programmes for care and protection of the elderly. It is interesting to note that national efforts to provide for vulnerable groups often end up consolidating the state efforts begun many decades ago. In this line is the National Social Assistance Scheme introduced on August 15, 1995. Among its components are the National Old Age Pension Scheme (NOAPS) are National Family Benefit Scheme (NFBS) and the National Maternity Benefit Scheme (NMBS). The old age pension scheme (NOAPS) is a 100 per cent centrally sponsored scheme giving assistance to the states for the poor elderly, with the norms, guidelines, and conditions laid down by the central government and managed by the union ministry of rural development. The administration is through the state governments even though the assistance is centrally provided [Alam and Anthony op cit; Rajan 2001]. Those eligible for this combined scheme are male or female destitutes above 65 years of age, with each state government reserving the right to determine the criteria for eligibility. The amount of assistance was Rs 75 with a ceiling on the number of claimants. Since then, in many states the numerical ceiling and the qualified amount have been enhanced.

However, all indigent senior citizens are not covered under the scheme of NOAPS; therefore in 1999, the government of India announced Annapurna , a national social assistance scheme for elderly destitutes. Under this scheme, the destitute old persons would be provided with 10 kg of rice or wheat per month free through the public distribution system (PDS). It is implemented by the ministry of rural development with the assistance of the ministry of food and civil supplies. It includes those destitutes who are eligible under the NOAPS, but have no one to look after them. In the initial years of implementation, Rs 100 crore was allotted and it was estimated to benefit 6.6 lakh elderly destitute persons. As of October 2000, only 15 states and two union territories have been covered by the programme to which the allocated amount has been released. Both the above schemes as well as the state pension schemes together cover 25 per cent of India ’s elderly population [Rajan 2001].

Pension Plans

The Employees’ Provident Funds & Miscellaneous Provisions Act, 1952 (EPF & MP Act) was applied to specific scheduled factories and establishments employing 20 or more employees and ensured terminal benefits of provident fund, superannuation pension, and family pension in case of death during service. Currently, the EPF covers only 29.3 million people or about 9 per cent of the workforce.

The government allowed final salary index-linked pension to the subscribers of EPF wherein 8.33 per cent of the employers’ contribution was diverted from provident fund to new pension fund called ‘Employee Pension Scheme’ (EPS). Thus the EPS 1995 was established as a replacement for ‘Family Pension Scheme. It is a defined benefit, publicly managed plan that pays workers a monthly pension after the retirement. It is currently funded by the employer and the government contributions of 8.33 per cent and 1.16 per cent respectively, of basic and DA. This pension scheme currently covers 26.4 million employees. Separate laws exist for similar benefits for the workers in coal mines and tea plantations. The various schemes presently available are represented with their respective coverage in Table 3.

It is evident that the total coverage under these schemes for building up old age income is very low which accounts for only about 50 million or 12 per cent of the total workforce. About 375 million or 88 per cent out of a total of about 424 million are not covered at all. Some of the other inherent limitations of the present pension system that are recognized in recent times are:

1)         limited coverage only for organised sector workers and thereby leaving the vast poor working population without any old-age income security;

2)         increasing fiscal burden on government finances in terms of pension payouts, making the existing pension system unsustainable; and

3)      the funding gap in the Employees Pension Scheme 1995 has been estimated at Rs 19,291 crore based on a 2002-03 evaluation report.

Investment Opportunities for Senior Citizens

Apart from the above measures, the government has undertaken a number of measures with the purpose of enticing people to make investment for future and also has offered tax rebates in view of their unique circumstances.

Postal Schemes 

Originally, the Small Savings Schemes was introduced by the Government of India during the World War I (1914-18), as the postal cash certificates scheme. Later on in 1943, the Post Office National Savings Certificate Scheme was launched to meet the inflationary tendencies, which had come to stay during the World-War II (1939-45).  After the independence in 1947 this scheme was made more attractive for the people by offering higher rates of interest and inculcating in them the habit to save. This was done to meet the rising developmental expenditure for the Five-Year Plans of the country. However, in the post liberalisation phase, the National Small Savings Funds have been created and the funds from there are utilised by state governments. The details of the schemes have been included in the Annexure. Following, the withdrawal of bonus on monthly income scheme and rising deposit rates of banks, the attractiveness of postal schemes have declined and mobilisations under them have also fallen (Table 4).  

Tax Concessions

            In the 1992-93 Union budget, in recognition of the hardship to old people given the firmness in inflation eroding the purchasing power of fixed income earners, the finance minister gave a tax rebate of 10 per cent to senior citizens who have attained the age of 65 years and whose gross total income was below Rs 50,000, which was increased to 20 per cent in the next budget along with the increase in threshold limit to Rs 75,000.

Over the years, the tax rebates and the limits have increased considerably. Upto assessment year 1997-98, rebate on tax payable by a senior citizen was allowable provided the income was below a certain limit (for assessment year 1996-97, 40 per cent tax rebate was available to a senior citizen provided his income was below Rs. 1.2 lakh). From the assessment year 1998-99, the tax rebate available to all senior citizens to the extent of the entire tax payable or Rs. 10,000 whichever is less without any ceiling on the income. This rebate has been further enhanced to Rs. 15,000 from the assessment year (A.Y.) 2001-2002 onwards. Rebate under this section has now been increased to Rs 20,000 from the assessment year 2004-05 by the Finance Act 2003. This rebate is available to all senior citizens whether they are pensioners or self-employed or traders etc.

Major Revision

In the union budget 2005-06, the finance minister, P Chidambaram, undertook a major overhaul of the entire direct tax system by introducing new tax bracket and new tax rates. Under this, the senior citizens were given the threshold exemption limit of Rs 1.5 lakh as against Rs 1 lakh for others or Rs 1,35,000 for women below 65 years of age. This limit has been further increased to Rs 1.95 lakh for senior citizens in the budget for 2007-08 against Rs 1,10,000 for normal assessment or Rs 1,45,000 for women assesses. (Women were given Rs 25,000 extra exemption in the 2005-06 budget and Rs 35,000 in the 2007-08 budget. Thus, the exemption limits are:-  

(ii) The 1 out of 6 criteria for filing of income tax return under proviso to Sec. 139(1) shall not be applicable in case of senior citizen. However, if a senior citizen meets any of the four criteria, other then ownership of immovable property of subscription to a telephone, then return will have to be filed by him.

(iii) Other Benefits: The deduction available u/s 80D for medical insurance premium paid is to be increased to Rs. 15,000 for senior citizens. Secondly, the deduction available u/s 80DDB in respect of expenditure incurred on treatment of specified diseases is tobe increased to Rs. 60,000 for senior citizens. The above provisions shall come into effect from assessment year 2000-2001 onwards.

Interest Rate Benefits

Moreover, in the late 1990’s when the RBI began pursuing a soft interest rate policy, the senior citizens and other fixed income earners began expressing their discomfort as their income levels began falling. As a result, the RBI allowed banks to pursue a differential interest rate structure by offering incentives to senior citizens by offering higher returns such as 50 basis points of 100 points over and above that offered on usual term deposits.

Varishta Pension Bima Yojana 

            In 2003, again in response to the hardships faced by the fixed income earners against the backdrop of soft interest rate regime, the government introduced Varishta Pension Bima Yojana. Under this scheme, the minimum entry age was 55 years and pension was payable in different time periods such as monthly, half-yearly, quarterly and annually. Depending upon the frequency of pension, the single premium, which was to be paid, was different. For instance, for an annual pension of Rs 24,000, the required premium amount was Rs 2,55,845, but for a monthly pension of Rs 2,000, the premium was higher at Rs 266,665. Also, on the death of pensioner, the pension was to stop automatically and only the purchase price is returned back to the pensioners’ nominee. However, this scheme did not last for more than a year.

Senior Citizens Savings Scheme, 2004

            Following the closing of Varishta Pension Bima Yojana, the government introduced Senior Citizens Savings Scheme, 2004. Under this scheme, the entry age was set at 60 years, but for those who opted for voluntary retirement scheme, the age bar was set at 55 years and the scheme has tenure of 5 years offering 9 per cent rate of interest with a maximum deposit of Rs 15 lakh (Details in Appendix II). 

Pension Plans by Mutual Funds

            In 1994, UTI introduced Retirement Benefit Pension Fund with a purpose to provide pension to investors particularly self-employed persons when they attain the age of 58 years, in the form of periodical cash flow upto the extent of repurchase value of their holding through a systematic withdrawal plan (Details in Appendix 2). 

            In 1997, Franklin Templeton, became the first private sector to offer pension fund, it invests in a mix of high quality debt instruments and equities to ensure relative stability of your investment and to deliver superior returns in comparison to traditional tax-saving instruments.  

Pension Plans from Insurance Sector

Pensions in India have remained confined to salarised sections of the population. Pension Plans are Individual Plans for one’s future and financial stability during their old age, which are most suited for senior citizens and those planning a secure future. Till about 1987-88, there was hardly any personal pension business in India . In 1988, LIC took the initiative by introducing two personal pension plans, a deferred pension plan christened ‘Jeevan Dhara’ and an immediate pension plan call ‘Jeevan Akshay’. Further, in 1996, LIC introduced a deferred pension plan called ‘Jeevan Suraksha’. All these plans were said to be in great demand due to tax incentives provided by the government. However, as on March 31, 2003, LIC’s portfolio of these policies in-force was just about 1.3 million. LIC offers a variety of pension plans, namely,

1)   Jeevan Nidhi                                                     2) Future Plus (closed for sale)

3)   Jeevan Akshay-III (closed for sale)                   4) Jeevan Akshay-IV (closed for sale)

5)   Jeevan Akshay-V                                             6) New Jeevan Dhara-I 

7)   New Jeevan Suraksha-I 

Presently, 15 life insurance companies are offering pension plans for individuals. The biggest player LIC tops the Pension Plan Business with 93.4 per cent market share (Table 6). 

Recent Highlights

Ministry of Finance convened a conference of Chief Ministers and State Finance Ministers on January 22, 2007. Majority of the State Government participants generally welcomed the move towards a fiscally sustainable pension system for civil servants and the establishment of an old age income security system for all Indians. Following the lead of the Central Government, 17 States have notified a defined contribution pension system for their new employees. The finance minister said that an interim investment pattern for funds collected under the new pension scheme from all central and state government employees recruited after January 1, 2004, would be notified soon, pending the passage of the Pension Fund Regulation and Development Authority) PFRDA Bill. 

Latest Budget Announcements

In the Budget Speech the Finance Minister (FM) has announced that a comprehensive Bill to amend the insurance laws will be introduced in the Budget Session.

On December 6, 2006, the President launched an exclusive health insurance scheme for senior citizens offered by National Insurance Company. The FM has appealed the other three public sector insurance companies to offer a similar product to senior citizens, and accordingly they have agreed to do so in 2007-08.

In the Union Budget 2007-08, the FM announced that National Housing Bank (NHB) is to introduce a novel product for senior citizens: a ‘reverse mortgage’ under which a senior citizen who is the owner of a house can avail of a monthly stream of income against the mortgage of his/her house, while remaining the owner and occupying the house throughout their lifetime, without repayment and servicing of the loan.

Reverse Mortgage

It is a loan specially meant for senior citizens in the age group of 62 or 65 years and above. Such a system is already existing in UK , USA and Australia . Of course the requirement is they should own a home and the financial institutions would be ready to give loans against it. As long as the borrower or the co-owner (spouse) stays in the house, loan taken against it need not be repaid. The loan is repaid only when the borrower sells the house or no longer lives there as their primary residence. It helps the house-owner meet his/her financial needs while still residing in their homes. The borrower should be the sole owner of the house.

Other Features

a)  The borrower need not have an income, the pre-requisite for raising any other loan;

b)  No Verification is done on the credit worthiness of the borrower;

c)  The loan amount depends on the borrower’s age, value of the property, rate of interest and lender’s terms/norms;

d)  Borrower will continue to be the owner of the property;

e)  The house being used for such loans should be free from other debts;

f)  The amount received is not considered as income, that means no tax;

g)  The borrower has several options to receive the loan, it may be monthly, one single payment, a credit line account and combination of both monthly case and credit line account.

Lenders are not allowed to change the property in their names. It will remain in the name of the borrower only. Another question commonly asked is, what will happen once the borrower is no more. This is also taken care of once it becomes due the equity left after payment to the lender towards the principal and the interest is paid to the estate or heirs of the borrower just like any conventional mortgage.

Conclusion

            Given the different age limits used by various ministries, it would be of an urgent nature for adopting a uniform age of 60 years for conferring the status of senior citizen to a person and for extending facilities/concessions to them (Table 7).

(For the details of benefits, see Annexure – I)

Further, the schemes available for those with good income streams ensure that they have better living thereafter. However, there is a need to have a more comprehensive and holistic approach towards the welfare of senior citizens. Though the recent step to introduce a reverse mortgage system is a step towards that direction, many more such schemes that will improve their living conditions. 

* - This note is prepared by Piyusha D Hukeri and Bipin K Deokar  

Highlights of  Current Economic Scene

AGRICULTURE  

As per estimates of soybean processors association, soymeal exports from the country, during October-September 2005-06 are seen at 3.5 million tonnes, down from 4.1 million tonnes in the same period a year ago due to good demand from the domestic poultry industry. Soymeal exports during October-February 2006-07 were 2.2 million tonnes, against 2.0 million tonnes a year ago. The exports are estimated at 500,000 tonnes in March 2007, 300,000 tonnes in April 2007 and 100,000 tonnes every month between May-September. The dip in exports post-March is due to the South American crop arriving in the global markets.

According to latest industry estimates by central organisation for oil industry and trade (COOIT), oilseeds output for the crop year ending June 2007 has been pegged at 22.67 million tonnes, down by 5.4 per cent from 23.97 million tonnes a year ago. Rabi output is projected at 9.52 million tonnes (against 10.27 million tonnes over last year) while Kharif output is estimated at 13.15 million tonnes (against 13.70 million tonnes a year ago). The latest advance estimate has revised the kharif oilseeds estimates upwards from an earlier estimate of 12.84 million tonnes. Soybean output is estimated at 7.66 million tonnes, up by 400,000 tonnes from the previous estimate of 7.05 million tonnes, as the crop benefited from the rains in September 2007. Mustard output is estimated to touch 6.02 million tonnes, against 6.77 million tonnes and groundnut estimate has been pegged at 5.4 million tonnes, against 6.25 million tonnes over the period of one year.

The State Bank of India and Nabard have plans to jointly to establish a ‘Farmers’ Club’ in Uttar Pradesh. The club aims at enhancing the bargaining power of the farmers and artisans besides training to progressive farmers for improving farm productivity. . The bank has proposed to use these farmers’ clubs for extending banking facilities and for financial inclusion of entire population of the identified villages across the state.

  Gujarat government has announced a decision to impose stock limits on wheat and pulses in the state to be implemented with immediate effect, that is, since March 20, 2007. The stock limits for pulses, as per the notification, are 100 tonne for wholesalers within Municipal Corporation limits, 75 tonne for wholesalers in cities other than above, 5 tonne for retailers within Municipal Corporation limits, 4 tonne for retailers in cities other than above.

According to the International Rubber Study Group, supply of natural rubber would be constrained until 2012 due to production lagging behind the rising demand from China and India . Output in Malaysia , the world’s third-biggest rubber producer, is likely to fall below 1 million tonnes by 2020 from 1.2 million tonnes in 2007 as farmers cut down rubber trees to plant oil palms.

The earnings from exports of spices during April-February 2006-07 have crossed the Rs 3,000 crore mark for the first time as against Rs 2,100.4 crore in the corresponding period last year. The exports during above mentioned have increased by 6 per cent in quantity and 44 per cent in terms of value over those in the same period last year. Spice oils and oleoresins, including mint products, contributed 46 per cent of the total export earnings. Chilli, with a 20 per cent share, has been the second largest contributor to export earnings followed by pepper (9 per cent), cumin (6 per cent) and turmeric (5 per cent).  With a 128 per cent rise in quantity and 156 per cent growth in value over the annual target, pepper performed better in both quantity and value. Total pepper exports have touched 25,500 tonnes at Rs 266.9 crore as against 15,126 tonnes and Rs 127.3 crore a year ago. A 5,500 tonnes increase in pepper exports over the target of 20 thousand tonnes has been driven by export subsidy introduced in November 2005.

The government has extended duty-free import of pulses by 8 months to March 31, 2008. The government had allowed the import of pulses at zero duty in 2006 to curb the rising prices in the domestic market, which had almost doubled due to lower domestic crop and high global prices. The country imports around 2 million tonnes pulses each year to meet its requirements, as the country’s annual output has been stagnant at 13-15 million tonnes since the past few years.p

The rice procurement during the marketing season 2006-07 is likely to touch last year’s record figure of 28 million tonnes. Food Corporation of India (FCI), as on March 14, 2007, has procured 19.9 million tonnes, marginally lower than 20.74 million tonnes purchased during the corresponding period of the last year. Of the 19.91 million tonnes procured so far, Punjab has contributed 7.74 million tonnes followed by Andhra Pradesh (2.49 million tonnes), Chattisgarh (2.48 million tonnes). The procurement is on the back of a sizeable kharif crop and a bonus of Rs 40 a quintal, on top of the procurement price of Rs 610 a quintal for grade-A paddy.

The parliamentary Standing Committee on Agriculture, in its report (2006-07), has targeted the government for providing “incorrect information” relating to farmers’ suicides across the country. As per official statistics, during the last five years, the number of farmers committing suicides has been 11,782. Suspecting the accuracy of this figure, the report has pointed out that in Maharashtra , the number of suicidal cases projected by the department was 142 in 2005 in contrast to the reported 435 suicides in Vidarbha region alone. The committee has also observed that the schemes for rehabilitation of farmers have been inadequate and the PM’s package for Vidarbha region in Maharashtra has failed to reach the victims.

As per the industry experts, six months left for the sugar season to end, the country would be able to export only eight lakh tonnes of sugar in 2006-07 mainly due to low global prices and capacity at ports.

Industry

Iron ore

Iron ore exports are projected to surge by 34 per cent to 12.69 mt in March 2007 despite a tax of Rs 300 a tonne imposed by the Budget 2007-08. According to the data available with Indian Ports Association (IPA) for March 1-15, exports have been almost 77 per cent of the last year’s monthly average. The IPA data shows that exports in January and February stood at 9.74 mt (million tonnes) and 9.45 mt, respectively and have been as high as 6.34 mt in the first 15 days of March, the period after the new impost. In 2006, total iron ore exports from India stood at about 90 mt, of which 74 mt has been exported to China alone. Though mining industry sources attribute the increase in March exports to prior bookings, analysts say that exports would continue given the sustained Chinese demand. Moreover, Indian iron ore has an advantage of about $18 a tonne on freight compared with Brazil . While China produces 250 mt specifically for steel making, it imports 350 mt a year. China purchases over 40 per cent of world iron ore exports while Europe and Japan account for 25 per cent and 20 per cent, respectively.

Contrary to the claim by Indian Steel Alliance that iron ore exports have surged by 34 per cent, the FIMI (Federation of Indian Mineral Industries) has declared that iron ore exports in March 2007 will be lower by 33 per cent vis-à-vis the exports in 2006. As per FIMI data, iron ore exports through east coast ports have been declining. In March 2006, Haldia handled 5.6 lakh tonnes of iron ore exports, Paradip 1.2 million tonnes (mt), Visakhapatnam 7.4 lakh tonnes, Kakinada 3.6 lakh tonnes and Chennai 1.14 mt. The corresponding figures for March this year are estimated to be Haldia 3.4 lakh tonnes, of which 2.4 lakh tonnes of shipments have been undertaken till now and another one lakh tonnes are due to take place in the remainder of the month. Similarly, Paradip is to handle 5.4 lakh tonnes of which 3.4 lakh tonnes have already been handled; Visakhapatnam 4.3 lakh tonnes of which 2.5 lakh tonnes have been undertaken; Kakinada 1.3 lakh tonnes of which 90,000 tonnes have already been undertaken and Chennai 7.4 lakh tonnes of which 4.9 lakh tonnes have already been handled. Ennore, which did not handle any shipment in March last year, is to handle about one lakh tonnes in March this year, half of which has already been handled. If all ports are taken into account, total exports in March this year will be around 7.16 mt, of which 4.98 mt have already been handled by the port with the balance 2.18 mt due to be handled in the remainder of the month. In March 2006, all the ports taken together handled 10.57 mt.

Infrastructure

 Power

The central government has decided to go against its decision to privatise or sell 740 mw of the total 2,150 mw of electricity generated by the Ratnagiri power project. Instead, it has given Maharashtra the consent to draw the entire 2,150 mw of power. Meanwhile, Ratnagiri power project ltd (RGPPL) has agreed to sign a power purchase agreement (PPA) with the Maharashtra state electricity board (MSEB) at a fixed cost of 98.5 paise per Kwh. The fixed cost of 96 paise per unit has gone up to 107 paise so RGPPL was initially opposed to the signing of PPA as it would have amounted to an under-recovery of 11 paise but has now agreed after the EGoM’s restructuring committee proposed to bear the raised cost. RGPPL has also signed a gas supply agreement (GSA) with GAIL. Moreover, the EGoM has also decided that 95 per cent of the power generated at Dabhol will be consumed by Maharashtra and only 5 per cent will be sold outside the state. The block-II of Dabhol, which runs on naphtha, is half operational and will be fully operational by March 31, while Block-III and Block-I will be ready by May 31 and December 15, respectively. Maharashtra is currently facing a daily power deficit of more than 5,500 mw.  

Petroleum

Export of petroleum products from India has shown impressive growth rates and is next only to engineering goods in terms of the share of the country's export basket. Petroleum products worth $11.3 billion have been exported in the April-October 2006 period accounting for 15.92 per cent of the total value of all exports, compared to $6.11 billion accounting for 10.79 per cent of total exports in the same period last year. Exports are mainly headed to the UAE, Singapore , Kenya , South Africa and Iran .

India 's crude oil production has increased by 4.9 per cent in February 2007 with companies like ONGC producing 2.667 million tonnes (mt) of crude oil compared with 2.54 mt in the corresponding month last year. However, the natural gas output has fallen by one per cent to 2.5 billion cubic meters.

Shipping

According to the shipping ministry's new dredging policy, Indian dredging companies will enjoy first right of refusal if their rates are within 10 per cent of the lowest valid offers in bids for major port contracts. This policy will apply for all 13 major ports except maintenance dredging requirements of the Kolkata port, for which separate instructions will apply. The policy will take effect from April 1, 2007 and will remain valid for three years. The move comes after the total exemption from import duty for dredgers in Budget 2007-08. According to the policy, the government also reserves the right to assign, in public interest, any contract for dredging work in any of the major ports to dredging corporation of India (DCI) on nomination.  Till a few years ago DCI virtually had a total monopoly over the dredging market. Last year L&T entered the business by acquiring majority stake in International seaport dredging pvt ltd. Since the government allowed international companies to enter the maintenance dredging business in 1993, foreign companies have been steadily gaining ground in the domestic dredging market. Dredging projects worth over Rs 2,000 crore are planned in the next couple of years at various ports. Some of the dredging projects are at Jawaharlal Nehru Port (Rs 800 crore), Paradip (Rs 250 crore) and Ennore (Rs 143 crore).

Roadways

Most of the highways projects are far behind schedule. Under the Golden Quadrilateral (GQ) programme, 5,846 km of highways is to be completed by June 2007, after two extensions in the deadline (the original one being December 2005). Till November 2006, 93 per cent of the work had been completed. Targets for the north-south-east-west (NSEW) corridor have also not been met. Under this corridor, a total of 7,300 km of highways are to be four-laned. Even after the ministry for roads and highways shifted the deadline by a year to December 2008, till November 30, 2006 only 853 km of highways (which is 11 per cent of the target) have been four-laned. In the case of phase III A of NHDP, where 4,000 km of roads are to be four-laned, the government has not set a deadline. But till November 30, 2006, only 30 km of highways had been completed. In the port connectivity project, only 34 per cent of the targeted work has been done. 

Inflation

The annual point-to-point inflation rate based on wholesale price index (WPI) stood at 6.46 percent for the week ended March 10,2007 or at a lower rate of 3.80 per cent during the corresponding week last year.

During the week under review, the WPI rose by 0.05 per cent to 209.3 from 209.2 for the previous level  (Base: 1993-94=100). The index of ‘primary articles’ group, (weight 22.02 per cent), rose by 0.1 percent to 214.3 from its previous week’s level of 214.2 mainly due to increase in prices of mutton, fish and masur,bajra etc. The index of ‘fuel, power, light and lubricants’ group (weight 14.23 per cent) remained stagnant. The price index of ‘manufactured products’ group moved up by 0.1 per cent to 183.0 from 182.9 due to increase in the prics of oil cakes, khandasri, drugs and medicine etc.

 The latest final index of WPI for the week ended January 13,2007 has been revised upwards; as a result both, the absolute index and the implied inflation rate stood at 208.7 and 6.15 per cent as against their provisional levels of 208.3 and 5.95 per cent, respectively.

Banking

The RBI has instructed banks to furnish data on frauds, thefts and burglaries on a quarterly basis to the regional offices of the Urban Banks Department. Cases of online fraud and identity theft (also known broadly as phishing) come under the purview of this notification. In recent years, HDFC Bank, ICICI, SBI and more recently UTI Bank has been the target of phishing attacks. Phishing is a form of online identity theft were consumer’s personal identity data and financial account credentials are stolen by third parties.

The RBI has rejected L&Ts proposal to acquire close to 10 per cent stake in the City Union Bank. However, it has permitted the engineering major to pick up 5 per cent stake in the Kumbakonam-based private sector bank. This is in line with the apex bank’s policy, which states no corporate entity holds over 5 per cent of capital in bank to ensure widely, distributed shareholding and avoids corporate influence on bank’s lending decisions.

Public Finance

Tax collections of the government till March 15, 2007 have estimated to reached at Rs 2,25,000 crore, a shade below the revised estimates of Rs 2,29,272 crore for the current fiscal year.

The government of Maharashtra has presented a surplus budget of (Rs 510.68 crore surplus) for the fiscal year 2007-08 on the back of a substantial state’s tax collection (more than Rs 5,412 crore). The budget has projected a rise of more than Rs 3,500 crore in VAT collection alone due to a booming economy. Similarly, soaring realty prices in cities like Mumbai, Thane, Pune, and Nagpur has also been expected to help the government add Rs 950 crore by way of stamp duty and registration charges. In the current financial year, the state is expected to collect Rs 6,250 crore. 

The government of Maharashtra in the previous fiscal year, had projected a revenue surplus of Rs 305.83 crore but the state is likely to end the current financial year with a revenue deficit of 3,192.49 crore. The deficit has been attributed to widespread flood situation in the state, increased burden of power subsidy and additional expenditure on relief package for distressed farmers from the Vidarbha region

The Budget for 2007-08 has not proposed major changes in value added tax (VAT), stamp duty rates, etc, but the government propose to increase tax on tobacco, tobacco products and liquor to compensate the loss of Rs 1,000 crore which may incur due to reduction in the rate of central sales tax from four per cent to three per cent.  Tobacco and tobacco products would now attract 12.5 per cent VAT. However, biddies and non-manufactured tobacco have been exempted from the tax.  The government has proposed to postpone the imposition of VAT on select commodities including rice, wheat, pulses, flour, jaggery, chillie, coconut, tea, towels and Solapuri chaddars for the next six months due to rising price. 

Financial Markets

Capital Markets

Primary Market

Advanta India Ltd. is tapping the market between March 26 and 30 through offer of shares of Rs 10 each in a price band of Rs 600-650 per share.

Ammana Bio Pharma Limited is to tap the market between March 28 and April 5 through issue of shares of Rs 10 each in a price band of Rs 12-14 per share.  

Secondary Market

The domestic bourses were back to their winning ways after posting losses for five consecutive weeks. The market managed to post gains, taking cues from a firm trend on bourses around the globe. In the past, domestic bourses have tracked global markets. Short covering in the derivatives segment also supported the rally. The BSE Sensex surged 855 points (6.88 per cent) for the week ended Friday (23 March 2007), to settle at 13,285.93, while the NSE Nifty rose 255 points (7 per cent), to finish at 3,861.05.

Five IPOs were listed during this week. On 20 March 2007, Astral Poly Technik, a manufacturer and provider of CPVC (Chlorinated Poly Vinyl Chloride) piping and plumbing systems, settled at Rs 104.55 on BSE, a discount of 9 per cent over the IPO price of Rs 115. On 19 March 2007, shares of three companies got listed on the bourses. Abhishek Mills settled at Rs 91.15, a discount of 8.85 per cent over the IPO price of Rs 100, while Jagjanani Textiles settled at Rs 23.15, a discount of 7.4 per cent over the IPO price of Rs 25. Lawreshwar Polymers settled at Rs 14, a discount of 12.5 per cent over the IPO price of Rs 16. AMD Metplast, however, settled at Rs 78.30, a slight premium of 4.4 per cent over the IPO price of Rs 75.

Indiabulls Real Estate Ltd (IBREL), the de-merged real estate arm of Indiabulls group, on Friday got listed at Bombay Stock exchange (BSE) at Rs 380.05 and was one of the top traded counter generating a volume of Rs 437.15 crore with 1.24 crore shares changing hands.

The Bank of Japan (BOJ) decided to keep interest rates unchanged at 0.5 per cent. BoJ Governor Toshihiko Fukui stuck to previous comments by saying the bank would adjust rates gradually on 20 March 2007.

On 21 March 2007, the US Federal Reserve’s policy-setting meeting dropped an explicit reference to the possibility of taking rates higher in its statement, sparking talk abut the next move of a cut. The Fed left interest rates unchanged at 5.25 per cent. US interest-rate futures indicated a 48 per cent chance of a rate-cut by end - June 2007, compared to 24 per cent before the Fed's announcement.

The People's Bank of China raised its benchmark lending rate by 27 bps to 6.39 per cent.

Meanwhile, the Securities & Exchange Board of India (Sebi) authorised all institutional investors, domestic and foreign, to sell short in the cash segment of the capital market. “The time frame for this will be decided fairly quickly,” Sebi Chairman M Damodaran said after the market regulator’s board meeting on Thursday. Sebi held preliminary discussions with stock exchanges who also have agreed, he added.

Though naked short selling will not be allowed, investors will have to fulfill their delivery obligation by borrowing shares through the securities lending and borrowing (SLB) mechanism. The SLB mechanism can be implemented through a clearing corporation or the custodian route, where investors can lend their shares to those who sold short. Of course, the lending investors could earn a fee for the shares lent.

India ’s first gold exchange traded fund (GETF) Gold Benchmark Exchange Traded Scheme (Gold BeES) floated by Benchmark Asset Management Company got listed on the National Stock Exchange (NSE) generating much interest among the investors community. The Gold BEeS was listed on NSE at Rs 1,000, and soon went up to touch a high of Rs 1,105 per unit (one unit of the scheme is equivalent to one gram of gold). However, it could not sustain the momentum created during the initial trading on profit booking at higher levels and stabilised at around Rs 945-Rs 948 level in tandem with the international gold prices. Benchmark gold ETF ended the day at Rs 947.80 down Rs 52.20, or 5.22 per cent, from its open price. Nearly 66,500 units changed hands in the counter clocking a total turnover of Rs 631.28 lakh. Benchmark allotment price for each unit of the Gold BeES was Rs 945.7 and its new fund offer raised Rs 100 crore from around 15,000 applicants.

The Securities and Exchange Board of India (Sebi) has tightened the disclosure norms for real estate companies which are planning to launch initial public offerings (IPOs). The move is aimed at imparting details of the real valuation of the property for the investing public and to arrest any kind of asset bubble in this sector. Damodaran said that the board has cleared the mandatory IPO grading on the advise of the primary market advisory committee (PMAC). "This is the first market where the grading of the IPO will be mandatory. No other jurisdiction has this," he said. The fee for this grading will be paid by the company. The rating agency Crisil has made a presentation on this subject before the board. This will not remain a simple grading product and over the time, the grading will be extended to the total equity offering of the company, he said.

Derivatives

The spot Nifty closed at 3,861 after gaining about 7 per cent. The March Nifty settled at 3,869.35 while the April Nifty was held at 3,865. There is already a switching of positions evident in the open interest as the numbers sharply decreased in the March future while the April future saw strong open interest expansion.

Government Securities Market

Primary Market

Under the weekly T-Bill auctions, the RBI mopped up Rs.2621.50 crore (MSS worth Rs.321.50 crore) and Rs.855.00 crore (MSS worth Rs.30.00 crore) through 91-day T-Bill and 182-day T-Bill. The cut-off yields for the 91-day and 182-day T-Bill were 7.9770 per cent and 8.2040 per cent respectively.

RBI conducted the auction of 6.65 per cent 2009 for a notified amount of Rs.2000 crore under MSS. The cut-off yield for the security was 8.01 per cent.

RBI conducted the auction of State Development Loan (SDL), 2017 for the state of Maharashtra for an aggregate amount of Rs.737.603 crore through a yield based auction using multiple price auction method. The cut-off yield of the security was 8.35 per cent

RBI conducted the auction for the buy-back of specified SDLs issued by the Government of Orissa. The total amount of securities bought back was Rs.86.412 crore.

RBI has announced sale (re-issue) of 6.65 per cent 2009 for Rs.6000 crore under the Market Stabilisation Scheme (MSS) on March 28, 2007.

Secondary Market

During the week, the weighted average rates in all the three segments of the money market increased sharply, declining only towards the end of the week. The overnight call rates shot upto a high of 75 per cent on account of tightening liquidity in the banking system. The weighted average call rates during the period ranged between 52.00 per cent and 9.49 per cent, while weighted average repo rates ranged between 16.65 per cent and 7.93 per cent and the weighted average CBLO rates ranged between 13.45 per cent and 8.00 per cent. The average volumes of Call, Repo and CBLO segments were Rs.12349.67 crore, Rs.5574.73 crore and Rs.14199.04 crore respectively. The daily average outstanding amounts in the LAF (reverse repo) and LAF (repo) operations conducted during the period were Rs.80.00 crore and Rs.40017.50 crore respectively. The weighted average YTM of G.S 2017 8.07 per cent bond was 7.9617 per cent on March 23, 2007 as compared to 7.9825 per cent on March 16, 2007. The 1-10 year YTM spreads was steady at 17bps.

RBI has clarified that banks can utilise funds accessed from the RBI LAF window for interbank lending but should not use the same for customer credit. According to the RBI, such inter-bank lending is part of normal money market functioning that enables daily liquidity management by market participants having temporary mismatches.

Bond Market

State Bank of India has tapped the market to mobilise Rs 500 crore through the issue of upper tier-II bonds by offering 9.85 per cent for 111 months. The bonds have been rated as AAA by Crisil and Care.

Foreign Exchange Market

Strong capital inflows and buoyant Asian markets helped the rupee go past the 44-mark to close the week at an 18-month high of 43.70 against the dollar. The six-month forward premia closed at 3.97 per cent (annualized) on March 23, 2007 vis-à-vis 3.58 per cent on March 16, 2007.

The yuan climbed to the strongest since a fixed exchange rate was scrapped in 2005 on speculation China ’s central bank will seek a stronger currency to slow the economy, after raising interest rates. Gains in the yuan against the dollar, which on Monday reached 7 per cent since the end of the peg, would help reduce demand for Chinese goods by making them costlier abroad. The impact of the central bank’s third-rate increase in 11 months, announced on March 17, may be limited because inflows of foreign exchange into the economy are helping to drive lending.

Commodities Futures derivatives

Chana March 2007 contracts prices on NCDEX platform hit 4 per cent upper circuit on Tuesday (Session-I) mainly on strong buying support amid short covering ahead of its expiry. Chana March 2007 contracts (expiring on March 20) were up Rs 101 or 4.38 per cent to trade at Rs 2406 per quintal over previous day on continued support on reports of crop damage in Rajasthan and MP.

On MCX platform, potato Agra as well as Tarkeshwar topped the losers list with 2.01 per cent and 1.87 per cent loss respectively. Agra March contracts were down 2.01 per to trade at Rs 609.90 per quintal on the back of reduced demand from cold storage. Traders said 70-80 per cent of cold storages are already filled up with stocks resulting in declining demand in near term.

Mentha oil March 2007 contracts were down 1.15 per cent to trade at Rs 557.7 per kg over previous day on account of weak market sentiments along with higher crop estimate this season.

Insurance

In the backdrop of lower returns on government bonds, the LIC from January onwards has been investing substantial amount in banks’ fixed deposits, as 8 per cent return on government bonds compare poorly to 10-12 per cent returns offered by upto one-year deposits and long-term bond issues by banks for capital adequacy purposes. In fact, fixed deposits are not a regular investment instruments for insurance company. LIC will be investing around Rs 500 crore in tier II bonds of various banks. LIC’s gross investment for the year ending March 31 is expected to be Rs 80,000 crore. As per Irda norms, LIC invests 50 per cent in government securities, 15 per cent in infrastructure, more than 15 per cent in approved investments, below 15 per cent in other than approved investments.

Corporate Sector

Reliance Industries is setting up a chemical plant at Jamnagar in Gujarat in partnership with US-based Rohm and Haas Co., the world’s biggest producer of acrylic-paint ingredients with a capacity to produce 200,000 tonnes of acrylic acid annually. Products from the new plant would be used to make paints, packing adhesives, detergents, and textile and construction materials.

Tata BP Solar India has announced a $100 million investment plan to double the manufacturing capacity of solar photovoltaic cells at its Bangalore plant.

TataGroupconglomerate is in concrete talks about buying a stake in T-Systems, which is the business unit of Deutsche Telecom that provides Internet and telecom services.

The Advertising Standards Council of India (ASCI) upholds consumer complaints against Cadbury India and Heinz India Pvt Ltd. The headline of Cadbury’s ad ‘Real achievers grow up on Bournvita’ and the implication of Heinz India ’s ad ‘twice as much increase in height’ was found to be misleading. Since both the companies could not substantiate their claims Consumer Complaints Council (CCC) up held these complaints. Heinz is modifying its television commercial to comply with ASCI code.

IT trainer NIIT tied up with US-based IT infrastructure solutions provider EMC to provide training in storage technology management in India through its centres across the country.

The Directorate General of Civil Aviation (DGCA) has necessitated all scheduled airlines to withdraw the Rs 150 per ticket congestion surcharge, which is likely to be withdrawn from April’ 2007. Even though the congestion problem was restricted to the Delhi , Mumbai and Bangalore airports private scheduled airlines were charging air congestion surcharge on their entire network to offset the losses. Companies will withdraw the ‘congestion surcharge’ but they are likely to hike the basic fare. 

Ranbaxy Laboratories has pulled out of the race to acquire the generics business of Germany ’s Merk following fears the valuations were getting beyond its reach. With global pharma majors joining the fray, valuations for Merk arm went beyond $6 billion.

RIL had applied to commerce ministry to convert its existing 33 million tonne per annum refinery at Jamnagar into an export-oriented unit (EOU). The status, if granted, would entitle the company duty free import of crude oil, as against a 5 percent duty on imported crude.   

International long distance call (ILD) charges are set to fall further, with the Trai reducing access deficit charges (ADC) by 37 per cent which amount to approximately Rs 2,000 crore. Trai has completely removed ADC on such calls from the present Re 0.80 per minute. The new rates will be effective from April 1, 2007. 

Oil and Natural Gas Corp Ltd is expected to start its pilot project for underground gasification of lignite near Vasthan area 20 kms away from Surat in Gujarat within a year. The company has also identified three other sites in Bhavnagar district of Saurashtra for similar projects.

Indian media and entertainment market is the fastest growing market of size Rs 19,000 crore and is poised to grow by 22 per cent to Rs 51,900 crore by 2011 as per the study conducted by Ficci and Price-WaterhouseCoopers (PwC). Currently, as many as 59 applications, including 38 for news and current affairs from groups like NDTV and CNBC are awaiting clearance from the government. 

Telecom

Idea Cellular has signed a 10-year outsourcing deal with IBM, worth $300-800 million (Rs 2,640 – 3,520 crore). The contract, effective from April 1, 2007 is designed on an innovative risk-reward revenue-sharing model and covers all of Idea’s existing operations and potential new additions.

The union cabinet has approved a revised set of guidelines for telecom companies to qualify for raising foreign direct investment up to 74 per cent.

Information Technology

Azim Premji will be receiving a massive amount of Rs 580 crore as dividend payout for his 80 per cent equity holding in Wipro as the company has announced a 100 per cent interim dividend (Rs 5 per equity share of face value Rs 5) for the year ending March 31, 2007. The domestic equity shareholders will earn close to Rs 48 crore, based on its holding of nearly 7 per cent. In the previous fiscal year also, Premji had made a similar gain of Rs 570 crore as the company announced a similar cash dividend of Rs 5 per share. Azim Premji is actively investing in diversified companies from the reserves he has been building up.

*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.

LIST OF WEEKLY THEMES

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