Current Economic Statistics and Review For the Week 
Ended June 2, 2007 (22^nd Weekly Report of 2007)

Theme of the week:

Gold Demand in India: Some Macroeconomic Implications

In a recent study by Natalie Dempster, Investment Research Manager of World Gold Council on “The Role of Gold in India (Gold: Report, World Gold Council, September 2006), interesting facts have been set out on the importance of gold in India ’s household psyche, in socio-economic, cultural and religious traditions.  Terming India ’s market size for gold as ‘a league of its own’, the author presents some telling facts:

            “ India is the world’s largest consumer of gold in tonnage terms. In 2005, India accounted for 22 per cent of global gold jewellery demand and 35 per cent of all net retail investment (coins and bars). Gold demand has grown at an average annual rate of 10% since the repeal of the Gold Control Act in 1990, which had forbidden the holding of gold in bar form. Although estimates vary, India is now thought to hold close to 15,000 tonnes or 10 per cent of the world’s entire above-ground gold stocks”.

Comparison with other countries

            That the country’s propensity to absorb gold is unique, is evident from the data contained in Table 1 and Graph A.  For a ten-year period 1996-2005, the average annual demand for gold has worked out to 675 tonnes for India , which is 157 per cent more than that of China .   China , a comparable country in size, enjoys a per capita annual income of $1,490 (or $ 5,896 PPP) whereas India ’s stands at $640 (or $ 3,139 PPP) during 2004  (UNDP’s Human Development Report 2006, Table 14). Thus, in every measure, India is 

a relatively poor country; she has a much larger economic and  social deprivation as more than two-thirds of her population are said to be so deprived.  Therefore, the absorption of such huge amount of gold speaks, for above all, unproductive use of potential domestic savings.

Recent increases in gold consumption

            The above data relate to the year 2005.  But, following further acceleration in economic growth, the demand for bullion holdings appears to have further expanded.    As brought out in the above article, the demand for gold in India has galloped rather strongly during the period 2002 to 2005 as compared with the first period 1996 to 2001.  The article also provides some interesting data on these two periods, which we have tabulated as in Table 2.

Three key results noticed in these data are:

(i)                  In the first period, incomes were not rising fast and the gold demand was fluctuating, though the overall demand was not any the less;

(ii)                In the second period, incomes had risen fast followed by a steady rise in the demand for gold, from 571 tonnes to 750 tonnes (or Rs 27,600 crore to Rs 47,300 crore); and

(iii)               The Indian demand for gold is generally in elastic to price increases which was evident from the fact that when gold prices shot up from Rs 15,026 to Rs 19,599 per troy ounce in the second period, the demand for gold steadily increased.

            Interestingly, there have been more rapid expansion in gold demand after 2005 (Table 3).  While the demand got stabilised at 716 tonnes in 2006 as compared with that of 722 tonnes of 2005 which was a peak, the first quarter of 2007 saw a jump of 50 per cent at 211 tonnes as compared with 141 tonnes in the first quarter of 2006.

Rising Trends in Gold Imports

            Gold consumption is almost entirely based on gold imports paid for in hard foreign exchange.  In the total sales (or demand) figures cited above, only about 105 tonnes (or 15 per cent) on an average are recycled good.  As shown in Table 4, gold imports have steadily risen from 410 tonnes in 2002 to 748 tonnes in 2005 and only fractionally fallen to 704 tonnes in 2006.  In value terms, the foreign exchange spent has more sharply risen from Rs 19,840 crore to Rs 61,433 crore because of the steady and sharp increases in gold prices abroad.

Apart from the spending of hard-earned foreign exchange (earnings from gold-related exports being limited), imports and holdings of gold are financed from household savings which could otherwise deployed for domestic investment. For instance, during 2006-07, such investment could have been augmented by as much as Rs 61,138 crore or 1.5 per cent of GDP (Table 5).  Thus, the rate of capital formation would have gone up from 32.4 per cent to near 34 per cent.

Such unproductive use of domestic savings have occurred because there has been a public policy to promote gold imports.  Amongst other things, the import duties, which were ruling at Rs 400 per 10 grams at some point, were brought down to Rs 250 per 10 grams.

Highlights of  Current Economic Scene

AGRICULTURE  

Wheat purchases by big companies have dropped by 43 per cent in the rabi marketing season (April-March) 2007-08 compared with last year, following the government regulation on stock declaration of purchases. Wheat purchases by big companies like ITC, Cargill and AWB India have totalled to 11.26 lakh tonnes so far this year, though the government has estimated them to be around 20 lakh tonnes. The government procurement agencies, on the other hand, have purchased 105.82 lakh tonnes by the end of May 2007, 14.77 per cent higher than corresponding purchase of 92.20 lakh tonnes a year ago. The central government is likely to end up purchasing 11 million tonnes of wheat, 4 million tonnes lower than the target of 15 million tonnes in current rabi marketing season 2007-08.

The central government has cancelled the tender floated by the State Trading Corporation of India (STC) for import of one million tonne wheat stating that the prices quoted by bidders were too high. Meanwhile, it has plans to float a fresh wheat import tender, timeframe for floating of which has not been decided yet. According to experts, this tender would be floated by June-July as global prices are expected to ease by then on new harvest arrivals in the Black Sea region and Europe . 

Sugar mills in Uttar Pradesh and Maharashtra , the country’s two largest sugarcane-producing states, are shutting down operations ahead of schedule to protect losses to some extent. Of the 120 mills in Uttar Pradesh operating sugar-season (October-September) 2007-08, only 28 are still functioning and are likely to continue crushing cane through mid-June. Uttar Pradesh has registered an output of 84 lakh tonnes so far in the current sugar-season. In Maharashtra 100 of the 163 mills are still operating, while the others have shut down their operations for the season. According to an estimate, about 30 lakh tonnes of sugarcane is waiting to be crushed in the state, with 788 lakh tonnes already crushed. Maharashtra is estimated to produce about 90 lakh tonnes this season. As per the industry sources, the Maharashtra sugar commissioner had warned the mills not to leave the cane uncrushed in spite of a low recovery. 

The flow of institutional credit to agriculture has exceeded the target for the third consecutive year in 2006-07. The actual credit disbursement is estimated to have touched Rs 2,03,297 crore by end of March 2007, about 16.2 per cent higher than the year’s target of Rs 1,75,000 crore.  Under the Kisan Credit Card scheme introduced in August 1998, over 65 million cards had been issued till February 2007. 

Coarse grain production in the country in 2007-08 is likely to touch a record high of 39.2 million tonnes on expectations of higher maize output, which accounts for more than 40 per cent of total production. Maize production is expected to rise 15 per cent to around 16 million tonnes from 13.9 million tonnes a year-ago. Production of other coarse cereals like sorghum (jowar), pearl millet (bajra), finger millet (ragi) and barley are also expected to rise between 15-30 per cent. The country has highest coarse cereals production of 37.6 million tonne in 2003-04.

Cotton output in the country is likely to be higher at about 28 million bales (1 bale is around 170 kg) in the crop year 2007-08 (October-September) from 27.3 million bales a year ago on account of a nearly five per cent year-on-year higher acreage, improved seed availability, agricultural know-how and farmers’ willingness to cultivate on a larger area. For the crop year 2007-08, Bt 151, which is the most popular variety, is estimated to be cultivated on 5.5 million hectares, compared with 3.8 million a year ago.

The central government has asked the states to prepare state-specific agriculture plans for which it would provide an assistance worth Rs 25,000 crore over the next four years. As most of the planning and implementation of strategies and programmes would be best done at the state level, states have to design their own strategies taking into account their resources and capabilities. The Planning Commission would prepare an outline for a major programme for providing support to states.

Aimed at ensuring sustainable levels of food to contain the rising prices, the central government has announced the launch of a food security mission raising the production of wheat, rice and pulses by 8 million tonnes, 10 million tonnes and 2 million tonnes, respectively. Other significant measures considered for improving the growth rate of farm sector include:

Provision of additional resources for irrigation projects through the Accelerated Irrigation Benefit Programme (AIBP0 as well as for use of modern techniques in irrigation methods and adoption of improved participatory irrigation management and command area development.

Giving an impetus to agriculture research, by providing additional resources for National Strategic Research Fund.

Restructuring the Rural Infrastructure Development Fund (RIDF) funding by NABARD and replacing the present pattern of year by year fund allocation by state-wise indicative allocations for the entire Eleventh Plan which will keep in mind the needs of states with low rural credit deposit ratios.

The central government has set up a Group of Ministers (GoM) to reduce the burgeoning fertiliser subsidy bill, which is expected to be over Rs 50,000 crore. For this purpose, it is preparing a road map on how to meet the requirement of subsidy and additional demand for fertiliser. To tackle the shortage of nutrients this Rabi season 20007-08, the Department of Fertilisers (DoF) has also decided to create a buffer stock of fertilisers, which would be equivalent to 5 per cent of the total consumption or at least 50,000 tonnes. The government’s initiative will cover urea and diammonia phosphate (DAP), the main products of the fertiliser industry. Similarly, efforts will be made to revive closed fertilizer plants and set up new units in West Asia and Africa to meet the additional demand of 30 million tonne during the Eleventh Plan period. Private sector companies will be encouraged to set up new units abroad either through joint ventures or by taking equity stakes in local companies in countries where natural gas, the main fuel for urea plants is easily available.

INFRASTRUCTURE

According to the planning commission’s deputy chairman, Mr. Montek Singh Ahluwalia, the total investment in infrastructure will have to increase to 9 per cent of gross domestic product (GDP) from the current level of below 5 per cent in order to meet the economic growth target of 9 per cent during the 11th Plan. He has also said that if the public sector goes alone in funding infrastructure development programmes, then such high growth rate expectations would not be met. Thus the private sector has a crucial role in it through public private partnership (PPP).

Petroleum

Petroleum refiners such as Indian oil and Bharat petroleum have processed 15.1 per cent more crude in April 2007 from a year earlier. This is because of addition of capacity and units running at higher rates to gain from rising global refining margins. According to the data released by the petroleum ministry, refiners have processed 12.53 million tonnes (mt) of oil into fuels in April this year compared to 10.88 mt in the corresponding month last year. Thus, growth in April has been highest since November last year, when refinery throughput was up 16.4 per cent. Refinery utilisation rate stands at 102.3 per cent of capacity in April 2007, which is lower than the 104 per cent achieved in April 2006. These figures are based on a survey of 17 state-owned refineries and one private refiner.

Cement

In a move to ease procedural delays in cement imports, the union government has permitted cement to be procured from pre-identified sources, which have a licence to use ISI mark in accordance with the foreign manufacturers' certification scheme of the bureau of Indian standards (BIS). Further, the imports can now be done freely unlike in the past when only the end-users were permitted. The condition that the imports must be on a continuous basis has also been scrapped. The directorate-general of foreign trade has notified these changes and these will be in force till March 31 next year. Earlier, many overseas cement consignments had been stuck at ports for want of BIS certification. Foreign manufacturers have to apply for the BIS certification, which involves inspection of their factories and satisfactory testing of samples by the Indian agency. The exporting company will have to pay one per cent of its annual export contract value to the BIS as marking fees, in addition to a minimum-marking fee of $2,000. The licence is valid for two years and can be renewed.

Railways

The net tonne kilometer (NTKM) growth rate for Indian Railways — a measure of combined increase in goods loading and distance moved — has touched a low of 0.33 per cent for April 2007 compared to April 2006. This has come about because of a combination of factors such as relatively lower growth rate (of 4.46 per cent) in loading of goods and an almost 4 per cent reduction in average distance over which goods have been moved during the period. NTKM is a key performance indicator for measuring the growth in railways and is directly proportional to the earnings. Railways has achieved 39,552 million NTKM in April this year compared to 39,420 million NTKM in April 2006. On an annual basis, railways has been witnessing over 6 per cent growth in NTKM since 2001-02. In April 2007, while railways has loaded 60.68 million tonnes (mt) of goods (up 4.46 per cent compared to April 06), it has recorded an average lead (average distance for which trains moved goods) of 652 kilometers (down by almost 3.98 per cent). However, earnings growth (at 8.78 per cent touching Rs 36,19.92 crore) during the month has been cushioned by a few factors that include several rounds of tariff increases that came about July onwards last year and increase in loading of those commodities for which railways records higher earnings on a per NTKM basis.

Aviation

The cabinet has approved construction of the second international airport at Navi Mumbai. The ministry of civil aviation will now set up a steering committee to oversee the structure and implementation of the project, including aspects like funding and selection of the strategic partner. 

INFLATION

Annual rate of inflation, based on WPI on point to point basis stood at 5.26 per cent for the week ended 19^th May 2007 as compared to 5.27 per cent last week or 5.05 per cent last year..

Over the week WPI rose by 0.1 per cent to 211.9 from 211.7 for the previous week. Primary articles prices went up by 0.2 per cent due to price rise in maize, fruits and vegetables, and barley. Higher prices of bitument pushed up the pices of Fuel,Power,Light and Lubrints roseby 0.1 per cent to 322.0. Index of Manufactured products rose marginally by 0.1 per cent in spite of fall in the prices of food products index by 0.4 per cent. The decrease in prices of sugar, gur, butter prices declined.

WPI index for all commodities were revised upwards for the week ended 24.3.2007 to 210.1 from 209.8. Inflation rate correspondingly changed to 6.54 from 6.39 per cent. 

BANKING

The RBI has diluted norms for business process outsourcing (BPO) firms drawing foreign exchange to buy equipment for new overseas call centres, considerably easing their global expansion plans. A recent central bank notification states that authorized banks may allow BPO firms to pay for equipment to be imported and installed at their overseas sites without physically bringing them to India , which was the requirement till now. The RBI has modified the procedure following requests from BPO companies wanting to set up call centres overseas. However, BPO companies will need to take necessary approvals from the Ministry of Information Technology in this regard.

PUBLIC FINANCE

As per the data released by Controller General of Accounts, fiscal deficit of the central government has stood at 3.5 per cent of the GDP during the year 2006-07 substantially lower than the revised estimate of 3.7 per cent for the year.  The revenue deficit has stood at 2 per cent of GDP for the year, the same as the revised estimate. The improvement in the deficit has mainly been attributed to a combination of higher GDP and the buoyant tax collections. The revenue during the year has stood at Rs 4,33,715 crore, higher by 2.5 per cent over the revised revenue estimate for the year.  The government also has managed to keep expenditure within projections. As against, the projected expenditure of Rs 5,81,637 crore (revised estimate for 2006-07), total expenditure stood at Rs 5,82,992 crore. 

In 2007-08, too, the deficits have seen a significant improvement. According to the latest monthly figures released by Controller General of Accounts, fiscal deficit in April 2007 has dropped to 18.4 per cent of the Budget estimate to stand at Rs 27,814 crore as against 21.5 per cent of the budget estimates recorded during April 2006. Meanwhile, revenue deficit, too, has seen a very marginal decrease to stand at 36.3 per cent of the Budget estimate, compared with 36.4 per cent in April 2006. The government has announced a revenue deficit target of Rs 71,478 crore for the current fiscal, which is 1.5 per cent of the GDP. The fiscal deficit is estimated at Rs 150,948 crore, which is 3.3 per cent of the GDP.

CORPORATE SECTOR

Tata Tea Ltd would acquire management control of Mount Everest Mineral Water Company (MEMW), owners of the Himalayan brand of bottled water. It recently sold its 30 percent stake in US energy drinks maker Glaceau to Coca-Cola company for $1.2 billion. Tata Tea will purchase 10.7 percent of equity shares from the promoters and subscribe to a preferential offer of shares of 15 percent of the capital of the company for around Rs 115 crore. It will also make an open offer to acquire up to an additional 20 percent of the equity of MEMW at a share price of Rs 140, in accordance with Sebi takeover regulations.

Vijay Mallya’s UB (Holdings) Ltd, which owns Kingfisher Airlines, has picked up a 26 per cent stake in India ’s first low-cost carrier, Bangalore-based Deccan Aviation, for Rs 550 crore. The two airlines will continue to operate as separate entities but the combination would be the largest player in domestic aviation with market share of 33 percent. While Deccan Aviation managing director GR Gopinath will be executive chairman of Deccan Aviation; Vijay Mallya will be the vice-chairman.

Coimbatore-based Pricol Ltd has entered into a joint venture with Nava Khodro Plastic Co, Iran to set up a plant in Iran to manufacture automobile instruments and censors. Pricol will hold a 50 percent equity stake in the company, which will begin operations with an initial capital of $2.5 million. Production is expected to begin by December 2007.

Wipro, Airtel and Bank of India have been honored the ‘The Outsourcing Excellence Awards’ for 2007. These awards, which dubbed as ‘Oscars of Outsourcing’, presented by the online community Outsourcing Centre, are given for the world’s best outsourcing arrangements. Wipro-Nortel Networks, Bank of India-Hewlett Packard and Bharti Airtel-Nortel Networks combine are among the nine winners for 2007. The Everest Group and US-based business magazine Forbes are sponsors of the awards, which will be presented in New York in August 2007.

After making big-ticket acquisitions abroad, leading Indian pharmaceuticals companies like Dr Reddy’s Laboratories, Ranbaxy Laboratories, and Aurobindo Pharma are rapidly shifting production to their Indian facilities. Dr Reddy’s for instance, will soon feed the entire product pipeline of Betapharm, the fourth largest generic (off patent) drug company in Germany that it acquired last year for $570 million from India . The company hopes to get regulatory approvals to source all of the company’s 20 products from India within a year. Betapharm could save at least 15-20 per cent by sourcing products from India . Ranbaxy, which acquired Romanian company Terapia for $324 million in 2006, has a slightly different strategy. It has made Terapia the hub of its European operations and is manufacturing medicines in the EU approved facilities in Romania by using raw materials or bulk drugs sourced from India .

FINANCIAL MARKETS

Capital Markets

Secondary Market

Continued institutional buying, firm global markets and short covering in derivatives took the S&P CNX Nifty to all time high and BSE Sensex to its highest level in nearly 4 months, last week. The market has been on an uptrend since early April 2007.

The 30-share BSE Sensex rose 232.30 points or 1.62per cent to 14,570.75 in the week ended Friday, 1 June 2007. This was its highest closing in nearly four months since 9 February 2007. The S&P CNX Nifty gained 48.90 points or 1.15per cent to 4297.05, a lifetime closing high.

Small-cap and mid-cap stocks which have been rising for a while now extended gains. The BSE Small-Cap index jumped 207.95 points or 2.86per cent to settle at 7,473.87. BSE Mid-Cap index rose 121.14 points or 1.97per cent to 6,264.28.

Positive cues from US and Asian markets took Sensex up 59 points on Monday 28 May 2007. The S&P CNX Nifty struck all time high.

The benchmark index, BSE Sensex, which stayed lacklustre for most part of the day, surged 110 points to cross the 14,500 level on Tuesday, 29 May 2007, led by gain in index heavyweight Reliance Industries (RIL). The rally was partly due to short covering ahead of expiry of May 2007 derivatives contracts on Thursday, 31 May 2007. Nifty struck a fresh record high.

Weakness in global markets pulled Sensex down 97 points on Wednesday, 30 May 2007. Chinese stocks tumbled 6.50per cent on that day after the government tripled a share-trading tax to cool its red-hot market, buffeting Asian and European markets. Nevertheless, the sharp fall in Chinese markets failed to trigger a broad rout in global markets which some had feared.

China 's Ministry of Finance raised stamp duty on share transactions to 0.3per cent from 0.1per cent in what was seen as the strongest attempt yet to curb speculation in a market that had risen more than 60per cent so far this year.

A rebound in Asian markets, strong January-March 2007 quarter GDP growth data and short-covering in derivatives ahead of expiry of May 2007 derivatives contracts lifted Sensex 133 points on Thursday, 31 May 2007. Asian shares rebounded after a record close on Wall Street on Wednesday helped soothe worries about a slump in Chinese mainland stocks.

The market posted small gains in volatile trading on Friday, 1 June 2007. Sensex rose 26 points.

FIIs made heavy purchases in the month of May 2007. FII inflow for May 2007, till 30 May 2007, aggregated Rs 3959.70 crore. Mutual funds, too, were in buying mode. Their inflow in May 2007, till 30 May 2007, totaled Rs 1783 crore.

Derivatives        

The Nifty June 2007 futures settled at 4,286.40, a discount of 10.55 points compared to the spot closing of 4,297.05.                         

Government Securities Market

Primary Market

The cut-off yield in 91-day T-Bill auction moved lower to 7.3937 per cent as against 7.6435 per cent during the previous week. The cut-off yield in 182 day T-Bill auction moved lower to 7.6190 per cent as against the previous cut-off yield of 7.7487 per cent.

RBI has announced the sale (re-issue) of "7.49 per cent Government Stock 2017" and "8.33 per cent Government Stock 2036" for Rs.6000 crores and Rs.3000 crores on June 5, 2007.

RBI has announced the sale (re-issue) of "6.65 per cent Government Stock 2009" for Rs.5000 crores under the Market Stabilisation Scheme (MSS) on June 6, 2007.

Secondary Market

During the week, the weighted average rates in the money market fell to historic lows on account of the ample liquidity in the system. Call rates ranged between 0.54 per cent and 7.18 per cent, while weighted average repo rates ranged between 0.24 per cent and 7.14 per cent and the weighted average CBLO rates ranged between 0.09 per cent and 6.82 per cent. Average CBLO volumes during the week increased by around 6per cent as compared to the previous week.   The weighted average rates moved lower during the week, with the weighted average overnight rates at 2.45 per cent as against 7.57 per cent during the previous week. The average volumes of Call, Repo, and CBLO segments were Rs.8782.71 crores, Rs.8889.28 crores, and Rs.241, 12.69 crores respectively. The daily average outstanding amount in the LAF (reverse repo) operation conducted during the period was Rs.2995.4 crores.

Bond Market

NABARD has tapped the market to mobilise Rs 200 crore by issuing bonds and offering 10.05 per cent for 7 years.

Foreign Exchange Market

The rupee closed at Rs.40.54/USD on June 1, 2007 as compared with Rs.40.6/USD as on May 25, 2007.The Rupee moved between Rs.40.45 and Rs.40.73, with a standard deviation of 11 paise during the week.

The six-month forward premia closed at 2.58 per cent (annualized) on June 1, 2007 vis-à-vis 4.23 per cent on May 25, 2007.

Commodities Futures derivatives

The issue of futures trading in rubber will be referred to the Abhijeet Sen committee ,Union minster for state for commerce ,Jairam Ramesh  informed at the function at Rubber Research Institute of India ,Puthupalli .The committee has been formed to study the impact of futures market in essential commodities. The futures trade in rubber is operating only for the speculators with no participation from farmers. At present only 2 per cent trading in rubber futures is getting delivered. Farmers and traders are demanding a ban on futures trade in rubber saying that they losing due to speculative trade by big players in Mumbai and other places.

National Stock Exchange of India Ltd (NSE) has introduced Futures & Options contracts in CNX 100 indices for trading in F&O segment with effect from June 1, 2007.

CORPORATE SECTOR

Tata Tea Ltd would acquire management control of Mount Everest Mineral Water Company (MEMW), owners of the Himalayan brand of bottled water. It recently sold its 30 percent stake in US energy drinks maker Glaceau to Coca-Cola company for $1.2 billion. Tata Tea will purchase 10.7 percent of equity shares from the promoters and subscribe to a preferential offer of shares of 15 percent of the capital of the company for around Rs 115 crore. It will also make an open offer to acquire up to an additional 20 percent of the equity of MEMW at a share price of Rs 140, in accordance with Sebi takeover regulations.

Vijay Mallya’s UB (Holdings) Ltd, which owns Kingfisher Airlines, has picked up a 26 per cent stake in India ’s first low-cost carrier, Bangalore-based Deccan Aviation, for Rs 550 crore. The two airlines will continue to operate as separate entities but the combination would be the largest player in domestic aviation with market share of 33 percent. While Deccan Aviation managing director GR Gopinath will be executive chairman of Deccan Aviation; Vijay Mallya will be the vice-chairman.

Coimbatore-based Pricol Ltd has entered into a joint venture with Nava Khodro Plastic Co, Iran to set up a plant in Iran to manufacture automobile instruments and censors. Pricol will hold a 50 percent equity stake in the company, which will begin operations with an initial capital of $2.5 million. Production is expected to begin by December 2007.

Wipro, Airtel and Bank of India have been honored the ‘The Outsourcing Excellence Awards’ for 2007. These awards, which dubbed as ‘Oscars of Outsourcing’, presented by the online community Outsourcing Centre, are given for the world’s best outsourcing arrangements. Wipro-Nortel Networks, Bank of India-Hewlett Packard and Bharti Airtel-Nortel Networks combine are among the nine winners for 2007. The Everest Group and US-based business magazine Forbes are sponsors of the awards, which will be presented in New York in August 2007.

After making big-ticket acquisitions abroad, leading Indian pharmaceuticals companies like Dr Reddy’s Laboratories, Ranbaxy Laboratories, and Aurobindo Pharma are rapidly shifting production to their Indian facilities. Dr Reddy’s for instance, will soon feed the entire product pipeline of Betapharm, the fourth largest generic (off patent) drug company in Germany that it acquired last year for $570 million from India . The company hopes to get regulatory approvals to source all of the company’s 20 products from India within a year. Betapharm could save at least 15-20 per cent by sourcing products from India . Ranbaxy, which acquired Romanian company Terapia for $324 million in 2006, has a slightly different strategy. It has made Terapia the hub of its European operations and is manufacturing medicines in the EU approved facilities in Romania by using raw materials or bulk drugs sourced from India .

EXTERNAL SECTOR

India ’s merchandise exports have seen a growth of 23 per cent during April 2007, over a year ago. Exports during March 2007 have stood at US $ 12.5 billion, US $ 9.7 billion in February 2007 and US $ 9.65 billion in January 2007. The target for merchandise exports in 2007-08 is US $ 160 billion.

Oil imports during April have stood at US $ 4.42 billion - an increase of 11.4per cent over the corresponding period last year.

Non-oil imports have increased by 54.3 per cent to stand at US $ 13.2 billion in April 2007. The trade deficit for the month has amounted to US $ 7.06 billion, substantially higher than US $ 3.94 billion during April 2006

INFORMATION TECHNOLOGY

IT major Infosys Technologies has valued its employees at a little more than Rs 57,000 crore, up 23 per cent from the last year. The company at the end of 2006-07 had close to 73,000 employees, a growth of 37 per cent over the previous year. Even though the companies has a net addition of close to 20,000 employees, the return on per employee basis has moved up to 6.7 per cent from the earlier 5.3 per cent. This reflects the sturdy systems and processes that the company has put in place to optimise better returns from their employees.

TCS has set up its first global delivery centre at Guadalaraja in Mexico . The centre will serve local Mexican clients, and provide near-shore services for US clients. TCS will hire 500 people this year for the centre. Apart from this it is also planning to expand its Latin America operations.

Andhra Pradesh has increased its share in the country’s software exports to 14 per cent at Rs 18,582 crore during the year 2006-07 from 12.5 per cent in the previous financial year when the software exports from the state stood at Rs 12,521 crore, registering a y-o-y growth of 48 per cent. Over 35,000 new IT jobs were created during the same period.

Mumbai-based domestic call centre, Effort BPO Ltd has entered into a joint venture with China based firm, Asia Star, and Hong Kong based firm, Triple Three, to establish a domestic call centre in China . The three partners will initially invest $1 million, which will be gradually increased to $6 million over a period of two years. Effort BPO will be holding a 51 percent equity stake while Asia Star will own 24 percent and Triple Three 25 percent. The new venture will employ about 1000 people and will take over Asia Star’s call centre business in Shanghai .

TELECOM

Bharat Sanchar Nigam Ltd (BSNL) and Mahanagar Telecom Nigam Ltd (MTNL) have reduced national roaming tariff to Re1 a minute. The new plan is open to all subscribers and will benefit frequent travellers. Reliance Communications (RComm) that had slashed roaming tariffs by 70 percent in May, scraps national roaming charges on selective tariffs. The plan will come into effect on June 3,2007.

A fall in the handset prices, the rising demand, drastic reduction in technology costs, besides outsourcing and infrastructure sharing, have fuelled the growth in revenue.

A fall in handset prices, coupled with declining tariffs has fuelled the growth in revenue. The country adds 6.5 million subscribers every month, making it one of the fastest growing telecom markets in the world. Though it has resulted in declining average revenue per user (ARPU) for service providers. According to analysts and industry watchers, while the price cuts would lead to initial losses, they would lead to mitigated in the long-run as the market matures and volumes increase. However, the industry’s ARPU, which measures the money that an operator gets from each subscriber, has fallen steadily to about Rs 370 a month at the end of March this year, a fall of Rs 30 from the last year.

*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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