Current Economic Statistics and Review For the Week 
Ended August 04, 2007 (31^st Weekly Report of 2007)

Theme of the week:

All-India Debt and Investment Survey 

Section 11
Cost of Debt - Rate of Interest * 

“The Rate of Interest and Terms of Payment of 

 Interest largely explain the Interest Burden or 

cost of debt borne by the indebted households”.

AIDIS Survey

I

Introduction

All India Debt and Investment Survey (AIDIS) conducted by National Sample Survey Organisation (NSSO) decennially throws light on basic quantitative information on assets, liabilities and capital expenditure of the household sector of the economy.

Interest Burden for a borrower depends upon rate of interest, terms of interest, duration of loans, type of loan and at times the security furnished. It is, therefore, interesting to study the interest burden of households according to different characteristics of  loans,  such as type of credit agencies, terms of interest, rate of interest, duration of debt and type of loan, etc. The interest amount charged per 100 rupee per annum by the lender is usually considered as rate of interest (ROI)  by the NSSO in their 59^th round (January-December 2003).

The quantum of interest paid by  households depends on both the nature of interest and actual rate of interest at which loans are contracted. This analysis does not attempt to categorise interest rate by terms or nature of interest rate but reviews the rate of interest charged by credit agencies to different households in rural and urban areas across States. In the process, the analysis highlights the interest charged to different households classified by the size of their asset holdings (primarily lowest and highest classes).

II

Rate of Interest by All Credit Agencies – Rural 

 The composition of aggregate amount of debt for rural households as on 30-6-2002, classified by rate of interest is given in Table 1.

It may be seen from Table 1 that 4.6 per cent of total households i.e. 17.3 per cent of households reporting cash loans reported ‘nil’ rate of interest against which the loan amounted to Rs. 9,363 crore (8.4 per cent of total debt outstanding). Out of the total 147.9 million households, 39.2 million households had cash loans outstanding to the tune of Rs. 111,468 crore as on 30-6-2002(Statements 1 and 2), indicating only 26.5 per cent of households reporting cash debt. Further, 22.3 million households forming about 15 per cent of the total households or about 57 per cent of indebted households reported their loans at 12-25 per cent interest rate amounting to Rs. 71,117 crore, i.e. 63.8 per cent of the total outstanding rural debt. Rural households numbering 1.2 million   forming 0.8 per cent of total rural households reported cash debt at Rs. 2,341 crore (2.1 per cent of total rural debt) outstanding as on 30-6-2002 at interest rate below 6 per cent. At the other extreme 10.5 million households have an outstanding debt of Rs. 19,395 crore at an interest rate of 30 per cent or above as on 30-6-2002 having their shares at  7.1 per cent and 17.4 per cent, in respective totals.

III

Rate of Interest by Institutional and Non-Institutional Agencies –

Rural Households

Nearly 20 million rural households reported cash loans outstanding to institutional agencies, as on 30-6-2002 and the amount outstanding was Rs. 63,610 crore. These details have been reproduced in Table 2.

It can be seen from Table 2 that institutional agencies extended cash loans at an interest rate ranging from 12 to 20 per cent amounting to Rs.52,224 crore forming about 82 per cent of total cash debt from these agencies, to 16.1 million rural households (80.9 per cent of reporting rural households).

Out of the total 147.9 million rural households, 28.8 million households are reported to have indebted to non-institutional agencies with the debt outstanding at Rs. 47,853 crore as on 30-6-2002 (Table 2). It can be seen from the Table 2 that the debt outstanding against the non-institutional agencies amounting to was around Rs. 15,935 crore forming about 33 per cent of total debt against these agencies, was  at an interest rate ranging 30-35 per cent as reported by 5.3 million households, as on 30-6-2002 and another 10.4 million households reported debt of Rs. 19,189 crore or 40.1 per cent of the total debt, at interest rate of 30 per cent and above.

IV

Burden of Debt between Asset Holding Class of Rs. 15,000 and Asset Holding             

 Class of Rs. 8 lakh and above among Rural Households

An attempt is made in this section to bring out the differentials in interest rates between households in lowest asset class and the largest asset size class.

Statement 5 and Statement 6 show the distribution of cash loans outstanding among the smallest asset holding class (AHC – less than Rs. 15,000) and the largest  class ( AHC – Equal or above Rs. 8 lakhs).

It can be seen from Table 3 that out of Rs. 1,602 crore cash loans outstanding, against the lowest asset holding classes, the maximum amount, i.e. 612 crore, or 38.2 per cent of the debt was reported to have lent at an interest rate 30 per cent and above. At interest rate ranging from 20-25 per cent, a sum of Rs. 380 crore reported outstanding as on 30-6-2002 against households in the smallest asset size class i.e. assets size of Rs. 15,000 or less. Debt outstanding for households with this asset holding class stood at Rs. 16 crore or 1.0 per cent of total outstanding debt at an interest rate of less than 6 per cent.

At the other end, households in the largest asset holding class of  Rs. 8 lakh and above, reported Rs. 22,629 crore forming about 69 per cent of their total cash loans outstanding as on 30-6-2002 at interest rate ranging 12 to 20 per cent.. Households in this asset holding class reported Rs. 3,794 crore forming  about 11.5 per cent of their total debt at interest rate less than 12 per cent, and of which about 2 per cent of total debt was contracted at rate below 6 per cent (Table 3).

V

 Rural – Cultivator Households

Statements 7 and 8 show distribution of number of cultivator households and amount of cash loans outstanding as on 30-6-2002 by interest rate and  state/ region-wise.

It may be seen from Table 4, 16.4 million cultivator households (18.6 per cent of total cultivators) reported cash debt at interest rate ranging from 12 to 25 per cent which accounted for 68.1 per cent of total debt reported by all cultivator households. Another amount of Rs. 12,338 crore or 15.1 per cent of debt were reported at 30 per cent or above interest rate by 6.4 million cultivator households. Only 0.8 million cultivator households reported cash loans outstanding amounting to Rs. 1,634 crore at less than 6 per cent rate. 

It can be seen from Table 4, that 83 per cent of total cultivator households reported  85 per cent of their total debt from institutional agencies  at interest rate at 12-20 per cent.

 Their debt at less than 6 per cent interest rate was reported to be only Rs. 899 crore or a meagre 1.8 per cent of total debt of cultivators as on 30-6-2002. Cultivators’ indebtedness to non-institutional agencies as on 30-6-2002 at interest rate 20-25 per cent and 30 per cent and above interest rate formed 36.8 per cent and 38.2 per cent of their total cash debt, respectively. Cultivator households also reported about 17.4 per cent of their total cash loans as free of interest, from non-institutional agencies.

VI

 Rural – Non-Cultivator Households

Statements 9 and 10 show distribution of number of non-cultivator households and amount cash loan outstanding as on 30-6-2002 by interest rate and  state/ region-wise.

It can be seen from Table 5 that 50.6 per cent of or Rs. 15,058 crore of outstanding cash loans were procured from all credit agencies by 6.0 million non-cultivator households at interest rate ranging from 12 to 25 per cent. Another amount of Rs.7.112 crore or 23.9 per cent was reported at an interest rate of 30 per cent or above by 4.2 million non-cultivator households. Only 0.4 million non-cultivator households reported cash loans outstanding amounting to Rs. 774 crore at less than 6 per cent.

Table 5 also reveals that 3.6 million non-cultivator households reported to be indebted to institutional agencies for a sum of Rs. 9,877 crore at interest rate ranging between 12 to 20 per cent. Cash loans from institutional agencies were reported by 0.2 million non-cultivator households to the tune of Rs. 369 crore at an interest rate below 6 per cent. Non-cultivator households indebtedness to non-institutional agencies, as on 30-6-2002 , was at the highest with  interest rate of 30 per cent and above forming   43.9 per cent of their total cash debt  

VII

Rate of Interest by All Credit Agencies – Urban 

 Number of urban households and the composition of aggregate amount of debt as on 30-6-2002 for urban households classified by rate of interest and state/ region are given  in Statements 9 and 10.

Out of the total 55.5 million estimated urban households, 9.9 million households reported cash loans outstanding at Rs. 65,327 crore as on 30-6-2002 (Statements 9 and 10). 

It can be seen from  Table 6 that 4.5 million households forming about 8 per cent of the total urban households, or about 45 per cent of indebted urban households reported cash loans of Rs. 40,698 crore (i.e. 62.3 per cent of the total outstanding urban household debt of Rs. 65,327 crore) at rate of interest of 10 to 20 per cent .  Urban households numbering 0.3 million, forming 0.5 per cent of total urban households, reported to have cash debt outstanding at Rs. 2,090 crore (3.2 per cent of total of urban households debt) as on 30-6-2002, at the interest rate below 6 per cent.

Rate of Interest by Institutional and Non-Institutional Agencies – Urban

Nearly 5 million urban households reported cash loans outstanding to institutional agencies, as on 30-6-2002 and the amount outstanding was Rs. 49,074 crore. It can be seen from Table 6 that 4.1 million households (or 79.4 per cent of reporting urban households) have reported that institutional agencies extended cash loans, at an interest rate ranging from 10 to 20 per cent to the tune of Rs.38,474 crore forming about 89 per cent of total cash debt from these agencies.

It is also reported by 5.2 million urban households, that they have debt outstanding to the tune of Rs. 16,240 crore (Table 6) from non-institutional agencies. Urban households numbering 2.0 million, forming 38.4 per cent of the urban households reporting debt from non- institutional agencies had debt outstanding from them the tune of Rs. 5,246 crore at an interest rate of 30 per cent or above.

* This note is prepared by R. Krishnaswamy

Highlights of  Current Economic Scene

AGRICULTURE  

Survey report undertaken by Rubber Board has explained that there is drastic fall in the rubber output and is feared to be as heavy as 50 per cent, which was estimated to be about 30 per cent. This drop in the production is due to fever, leaf-fungus disease in the regions of Kottayam, Kollam and Pattanamtitta districts of Kerla where rubber is produced at high rate. Other factors responsible include non-availability of rubber tappers, and heavy rainfall in the planting areas.

Ginger prices would rise as its production has dropped in the farming areas of Kerala and Karnataka. Wayanad, the highest ginger-producing region has dropped by 25 per cent, while in Karnataka it has fallen by almost 50 per cent. Ginger prices had touched a peak of Rs 50 per kg (of fresh farm grade ginger) in 2003 and then dropped to a low of Rs 6-8 per kg in 2006. However, heavy rainfall and very high production costs have affected ginger output adversely this year, resulting in inadequate supply of good quality ginger in the domestic market besides putting upward pressure on ginger prices in the short run.

Coffee production in Kerala is likely to decline due to heavy and continuous rains in the Wayanad region. Kerala accounts for about 25% of the country’s coffee production and 21% of the total cultivating area.

In order to increase the production of cotton in the state, West Bengal has decided introduced the commercial production of Bt Cotton (the genetically modified variety of cotton). It has plans to increase the cultivable area of cotton to 5, 000 hectares by the end of the 11^th plan period, which at present is 500 hectares only. For trial cultivation of Bt cotton, research organisation, i.e., state biotechnology co-ordination committee has been established from March 2007. It has started monitoring each and every research work and cultivation in the state with genetically modified seeds.

 The central government has agreed to place the toxicity and allergen city data relating to Bt cotton in public domain. The data would be placed on the website hosted by the GEAC and GEAC has already begun with the research work related to finding out the area suitable for cultivation of Bt seeds.

The government is planning to launch an integrated micro insurance policy (Parivar Bima), as a safety net for the poor. It is also trying to reduce the rate of interest for farm loans to 4percent under the National Commission on Farmers (NCF). An Agricultural Risk Fund, a new credit policy under the NCF would be established to provide loans and relief to farmer in the areas hit by natural calamities. The agriculture ministry is trying to make farming a viable activity; so it has included credit and insurance. The government has planned to set up a system to speed up issue of Kissan Credit Cards (KCC) to women farmers with proper documentation, as there are large number of women-headed farming families in rural areas.

Union agriculture ministry in collaboration with the department of space is likely to undertake a project called FASAL for forecasting crop production. The project would help in assessing the health of standing crops and forecasting crop production through remote sensing operations. This project would simulate data from six satellites and develop biomass index for different crops and forecast the health of the crops on real time basis, which would eventually help in forecasting production.

The OIE [world organisation for animal health], has reported an outbreak of disease Avian Influenza and H5N1 virus among 1,40,000 chickens in and around a small poultry farm near Imphal in the northeastern region of the country. India ’s Animal Husbandry Department, have sent some international experts for monitoring poultry health in the state more closely to fight against bird flu. The Union health ministry has initiated action to prevent the spread of the disease to humans. Owing to this outbreak of Bird flu, the countries like UAE, Sri Lanka , Bhutan and Oman have reported to impose ban on imports of poultry products from India , under the notification of July 25, 2007. As a result, egg exporters are expecting a loss of nearly Rs 32-36 lakh per day. In fact, egg exports have shown a steep decline of 50 per cent from Namakkal region alone that accounts for 90 per cent of the total egg exports from the country.

Soybean meal exports in the year starting November 2007 may exceed this year’s expected 3.7 million tonnes and last year’s record 4 million tonnes. Higher exports may pose competition for the US and Latin American suppliers of soybean meal in Japan , South Korea and Thailand . Soybean products are traditionally exported to Southeast Asian countries and may begin shipping to Europe from fiscal year 2007-08, if the bloc bans on imports are sorted out. Some traders have sold about 50,000 tonnes of soybean meal from the new crop at prices ranging from US $290 to $295 tonnes for delivery in November and December 2007 to Southeast Asian countries.

Estimation undertaken by FAO has revealed that world wheat production would increase to 619 million tonnes in 2007, i.e., 3.6 per cent higher than last year. The wheat harvest would increase in all areas barring some parts of Europe . The output of rice and coarse cereals has also grown and pushed the total world cereal production to 2,121 tonnes, i.e., 5.3 per cent more than last year. World production of rice is likely to increase to 426 million tonnes, i.e., around 1 per cent from that in 2006. Output coarse cereals are projected as 1,076 million tonnes, about 8.3 per cent higher than last year’s harvest. Moreover, the maize production is set to reach 778 million tonnes on account of sharp rise in the area under the maize production in major maize producing countries like Argentina and Brazil .

The government is considering abolishing customs duty on wheat flour and floating a new tender for import in August 2007. Food ministry has proposed scrapping an existing 30percent customs duty on wheat flour to build stocks and to control wheat price-rise during upcoming religious festivals.

The country’s onion exports have declined by 27.79 percent during April-July this year over the same period in 2006, owing to high prices quoted by agencies undertaking sales, besides tough competition from Pakistan and China . National Agricultural Cooperative Marketing Federation of India (Nafed) has stated that exports of onion have dipped to 2.78 lakh tonnes till July 28 in the current fiscal year, against 3.85 lakh tonnes a year-ago. This agency have raised the minimum export price (MEP) of the commodity by US $20 per tonne from August 1, 2007 to discourage overseas sales for stabilising prices in the domestic markets, which have shot up due to short supply.

Trading Corporation of Pakistan has charged a legal notice to the government of India over the issue of basmati rice. According to them, Indian exporters were not eligible to export the ‘Super’ variety of basmati and to claim duty free benefit given by the European Union. However, India rejected this claim under Article 28 of the pact that had been signed by both the countries in an agreement on agriculture at the WTO in 2004.

Industry

US based FMCG firm Procter and Gamble (P&G) is entering into the Rs 2,100 skincare market in India with the launch of a range of products including an anti-ageing cream.

Electrical Machinery

Bajaj electricals has entered into a technical collaboration with Halver of UK to bring in lighting control mechanisms such as daylight harvesting, regulating light brightness and reducing power consumption for large commercial luminaries including retail malls, offices, shopping complexes schools and colleges etc. This mechanism from Halver will include products such as controllers, sensors, dimmers and panel board.

Electricity

In order to meet a sudden increase in demand due to the IT boom in Bangalore the Karnataka government has decided to add 2000 mw power in the next four years, a sizeable part of which would come through Greenfield thermal power stations and by increasing installed capacity in existing stations in the state. The current installed capacity of the state stands at 7670 mw of which Karnataka Power Corporation Ltd (KPCL) and the Union Government account for 4994 mw and 1157 mw respectively while private players contribute 1518 mw.

In the second round of bidding called by the board of Sasan Power Ltd Reliance power (RPL), a subsidiary of Reliance Energy (REL) has bagged the 4000 mw Sasan power project by lowering its tariff bid from Rs 1.29 per unit to Rs1.196 per unit. REL would explore a debt-equity ratio of 70:30 or 80:20 to fund Rs 20,000 project. RPL has been asked to complete the project in a span of less than five years.

Oil and Natural Gas

Oil and Natural gas Corporation (ONGC) is likely to get a final notification clearing its special economic zone in Mangalore by the end of December 2007.According to Finance Minister, the government would hand over 268 acres to the Mangalore SEZ by September 15, 2007.

The government has postponed its auction of about 80 oil and gas blocks until November 2007, due to shortage of rigs and dispute over gas pricing. As a result of a surge in global oil prices demand for rigs, drilling equipment and services has risen. The situation is expected to ease in 2009 with the commissioning of new rigs.

Railway

Following the Planning Commission’s suggestion, during the 11 th plan the railway ministry has decided to spend about 3 percent of its budget annually on Information Technology (IT) related activities. The railways would spend a total of about Rs 930 crore of its Rs 31,000 crore budget on IT related activities for 2007-08.

Steel

The government has given environmental clearance to South Korean steel giant Posco’s 12 million integrated steel project in Orissa.

The Ratnagiri Gas and Power Pvt Ltd (RGPPL) would generate 2000 mw from January 2008 by generating 740 mw each from its three blocks of gas reserves.

Cement

In order to get the market leadership in the Cement sector the Aditya Birla Group (comprising Ultratech and Grasim) and Holcim(ACC) have asked dealers in Mumbai to sell their cement bags for a commission  or face a halt in supplies. Some dealers have been offered Rs 2.25 extra a bag for exclusive sales. Consequently, about 35-40 percent dealers in the city have agreed to sell Birla or Holcim brands. With this offer mostly dealers with medium sales are turning exclusive.

Inflation

The annual point-to-point inflation rate based on wholesale price index (WPI) rose by 4.36 percent for the week ended July 21,2007. During the comparable week of the earlier year, it was 4.72 per cent.

During the week under review, the WPI rose to 213.1 from 212.9 in the previous weeks’ level (Base: 1993-94=100). The index of ‘primary articles’ group, (weight 22.02 per cent), declined by 0.1 percent to 222.8 from its previous week’s level of 222.5, mainly due to decline in  prices of ‘food article like  eggs, mutton, fish-marine, gram, maize. However, the increase in prices of fruits and vegetables, pork and coffee offset the decline to some extend.

Marginal rise is witnessed in the price index of ‘fuel, power, light and lubricants’ group (weight 14.23 per cent) due to higher price of furnace oil offset to some extend by a fall in the prices of naptha.

The index of ‘manufactured products’ group rose by 0.1 per cent to 185.5 from 184.3 during the week under review. The higher prices of food products like coffee, coconut oil, imported edible oil, oil cakes, groundnut oil, cotton seed oil and khandasari. pushed up the prices of manufactured products.

The latest final index of WPI for the week ended May 26, 2007 has been revised upwards; as a result both, the absolute index and the implied inflation rate stood at 212.3 and 5.15 per cent as against their provisional levels of 211.7 and 4.85 per cent, respectively.

Banking

UTI Bank has rechristened itself as Axis Bank. The bank with a customer base of 6 million is planning inorganic growth for its ventures dealing with new areas. It is also overhauling its corporate banking with the involvement of McKinsey.

The Export Import Bank (EXIM) Bank of India has firmed up plans to raise Rs 12,000 crore from the market globally in 2007-08 against Rs 10,621 crore it raised last fiscal.

French banking major BNP Paribas’ India operations posted an impressive 233 per cent growth in net profit to Rs 63.6 crore for the year ended March 2007 against Rs 19.1 crore for year ended March 2006.

UCO Bank has reported a 116 per cent increase in post-tax profit during the first quarter of the current financial year. Net profit stood at Rs 132.87 crore in the first quarter as compared to Rs 61.50 crore in the same corresponding period in the previous year.

In a move to rein in excess liquidity, the RBI has hiked banks’ cash reserve ratio (CRR) by 50 basis points at 7 per cent with effect from the forthnight beginning August 4, 2007. The hike in CRR will suck out the excess liquidity of Rs 16,000 crore from the system. As well RBI has removed the Rs 3,000 crore cap it had on daily reverse repos under its liquidity adjustment facility (LAF). Removal of the Rs 3000 crore cap will drain out surplus cash on a daily basis and also improve the unnaturally low call rates. Both the other operational rates – the repo and reverse repo – were kept unchanged at 7.75 per cent and 6 per cent respectively.

Corporation Bank, in association with mobile payment service provider PayMate, has launched a facility to make payments through cell phones for its customers.

With a view to providing impetus for rural growth and financial inclusion IDBI has launched a mobile branch, the first of its kind in Maharashtra , at Satara. The mobile branch consists of a Kisan ATM operated on a biometric system.

Fiscal Performance

During the first quarter of the fiscal year 2007-08, the fiscal deficit of the central government has stood at Rs 1,12,404 crore touching 74.5 per cent of the budget estimates of Rs 1,50,948 crore for the year. This increase in fiscal deficit has been mainly on account of higher spending by the government in order to acquire Reserve Bank of India ’s (RBI) 59.7 per cent stake in State Bank of India (SBI). The government has acquired the stake in SBI for a total consideration of about Rs 35,531.33 crore earlier during the year. Excluding this transaction, the fiscal deficit during the period has stood at Rs 76,873 crore. The government has assured to neutralise this expenditure by realising equal amount of receipts from RBI during this financial year. Revenue deficit during April-June 2007 has stood at Rs 68,646 crore comprising 96 per cent of the budget estimates compared to 83.4 per cent in the same period last fiscal.

Financial Markets

Capital Markets

Primary Market

Real estate company Puravankara Projects has extended its initial public offering subscription period from August 3 to August 8 and reduced its price band from Rs 500- 525 to Rs 400-450 a share. The offer opened on July 31.

“The decision was taken in view of the volatility of the global and Indian markets and, with due respect to investor sentiment, who expressed a deep desire to invest in our company but also pointed out the market condition,” said Mr Ravi Ramu, Director, Puravankara. Apparently, poor response has forced the company to extend the IPO. Figures put out by the NSE as of 5 p.m. on Friday said the issue was subscribed 0.36 times (on both BSE and NSE). Total bids received were 76,26,010 and those at cut-off price were 30,33,200. This is not the first time that IPOs had to cut price and extend the offer period. When the market was witnessing adverse conditions in May-June 2006, issues such as Air Deccan, Abhishek Mills, Bluplast and Vigneshwara Exports were also forced to resort to similar measures.

Take solutions Ltd will tap the capital markets on Aug 01 through an IPO 16.67  per cent of its equity capital  to raise about Rs. 155 Cr at the upper end of the share price band. The company which delivers supply  chain management solutions will issue 2000000 equity shares  of Rs 10 each for cash through a100 per cent book building process at price band between Rs675 and Rs 730 per share.      About 60 per cent (1200000 shares) of the share corpus has been earmarked for qualified institutional bidders (of which 5  per cent will be mutual fund allotments)30 per cent(600000 shares) for retail individual investors, and 10  per cent for the high net worth  or non institutional category.

Secondary Market

The market settled on a weak note as it posted weekly loss for the second straight week as stocks across the globe were gripped by correction. Volatility was intense throughout the week. Despite the market gaining in 4 out of 5 days of the week, it settled lower for the week.

The benchmark index BSE Sensex lost 96 points or 0.63 per cent at 15,138.40 in the week ended 3 August 2007. The S&P CNX Nifty lost 44 points or 0.96 per cent at 4401.55.

The BSE 30-share Sensex rose 26.34 points at 15,260.91 on Monday with shares from banking sector and select real estate stocks gaining on speculative buying ahead of RBI’s monetary policy on Tuesday, 31 July 2007 .

On 31 July 2007, the BSE 30-share Sensex galloped 290.08 points at 15,550.99 despite the Reserve Bank of India (RBI) increasing the CRR (cash to reserve ratio) by 50 bps to 7 per cent

The 30-shares BSE Sensex plunged 615.22 points to settle at 14,935.77, on 1 August 2007, its third biggest single day point fall ever. It opened with a downward gap on intense selling pressure on global meltdown. The spectre of defaults in sub-prime lending in the US housing loan market, which spooked markets worldwide, didn’t spare the country’s bourses either.

The benchmark Sensex and Nifty indices shed around four per cent of their previous day’s

close on a day of severe bloodletting across the spectrum

Sensex gained 49.93 points at 14,985.70 on 2 August 2007, on support from global markets

Recovery continued a day later as the Sensex advanced 152.70 points at 15,138.40 on 3 August 2007, with all the sectoral indices on BSE posting gains. Shares from real estate, banking and cement were in demand.

Everonn Systems India settled at Rs 478.45 on BSE, a 241.75 per cent premium over the offer price of Rs 140, on 1 August 2007. The Everonn Systems India scrip debuted at Rs 245 on BSE and touched a high of Rs 560 and a low of Rs 245 during the day.

Industry-wise data mined by the Securities and Exchange Board of India and released for the first time reveal VC investments in the country have been progressively on the rise, standing at Rs 20,310 crore as on June 30, 2007, higher than Rs 17,621 crore that added up for the previous quarter (March).Real estate, which has lately drawn considerable attention from retail and institutional investors, has topped the charts with Rs 2,788 crore in all. Of this, venture capital funds (VCFs) accounted for Rs 1,900 crore, while foreign venture capital investors (FVCIs) made up Rs 888 crore.The services sector, a sweeping term that no doubt comprises a number of segments, is the second-biggest recipient of VC funds, a total of Rs 2,020 crore. IT occupies the third place with Rs 1,695 crore.

The asset base of the mutual fund industry has surged by a record Rs 86,180 crore in July 2007, according to data released by the Association of Mutual Funds in India (AMFI). The total assets under management for the industry stands at Rs ,86,513.71 crore, an increase of 21.5 per cent over Rs 4,00,332.99 crore recorded in June 2007.

Of the total 32 fund houses, the asset base of 30 witnessed substantial inflows in July. Only the assets under management (AUM) of two fund houses, Benchmark Mutual Fund and Quantum Mutual Fund have fallen.

Securities and Exchange Board of India Chairman, M Damodaran, has called for a debate on the prevalent practice of quarterly guidance.

''Due to pressure from analysts companies put out numbers before their quarterly results which are no different from forward-looking statements,'' the Sebi chief said, during his keynote address at a CII seminar on The Changing Face of Financial Leadership in Chennai, on Thursday.   

Damodaran said that some influential stakeholder sections in the United States have expressed the need to do away with quarterly guidance, and that there must be some truth in it. 

Derivatives                                  

The nifty saw a rollover of 79 per cent and the market wide rollover was nearly 84 per cent.

Government Securities Market

Primary Market

RBI conducted the auction of "7.99 per cent Government Stock 2017" and "7.95 per cent Government Stock 2032" for the notified amounts of Rs.6000 crores and Rs.4000 crores respectively. The cut-off yields for the "7.99 per cent Government Stock 2017" and "7.95 per cent Government Stock 2032" were 7.9296 per cent and 8.4487 per cent respectively.

RBI conducted the sale (re-issue) of "5.48 per cent Government Stock 2009" for Rs.5000 crores under the Market Stabilisation Scheme (MSS) on August 1, 2007. The ut-off yield of the security was set at 7.7407 per cent

RBI has announced the sale (re-issue) of "5.48 per cent Government Stock 2009" for Rs.4000 crores under the Market Stabilisation Scheme (MSS) on August 8, 2007.

The government has announced the issue of "8.08 per cent Government Stock 2022" for an aggregate amount of Rs. 2,969.411 crore (nominal), "8.26 per cent Government Stock 2027" for an aggregate amount of Rs.1,427.329 crore (nominal) and "8.32 per cent Government Stock 2032" for an aggregate amount of Rs. 2,434.050 crore to 11 state-run banks in exchange for recapitalization bonds held by them on August 2, 2007.

The cut-off yield in 91-day T-Bill auction moved higher to 6.4805 per cent as against 4.4612 per cent during the previous week. The cut-off yield in 364 -day T-Bill auction moved higher to 7.2470 per cent as against the previous cut-off yield of 6.5824 per cent

Secondary Market

The central bank, on 31 July 2007 left the reverse repo rate, the rate at which it absorbs excess cash from banks, unchanged at 6 per cent It also kept bank rate unchanged at 6 per cent  Reserve Bank of India (RBI) increased CRR (cash to reserve ratio) by 50 basis points to 7 per cent from 6.5 per cent (100 bps is equal to 1 per cent) in a bid to drain out the excess supply of funds and ensure price and financial stability. RBI said it will endeavor to contain inflation close to 5 per cent in 2007-08 and in the range of 4–4.5 per cent over the medium term. It also maintained its FY 2008 GDP growth forecast unchanged at 8.5 per cent The central bank also removed the Rs 3,000 crore cap on daily reverse repo transaction from 6 August 2007, the window through which it absorbs liquidity in a bid to check volatility in call money rates.

Finance Minister P Chidambaram advised public sector banks not to raise their lending rates following the increase in cash reserve ratio (CRR) and was particularly concerned about the impact of high interest costs on fast-moving consumer goods (FMCG) and automobile sales.   

The Governing Council of the ECB has maintained the minimum bid rate on the main refinancing operations, the interest rates on the marginal lending facility and the deposit facility at 4.00 per cent, 5.00 per cent and 3.00 per cent respectively.

The Monetary Policy Committee of Bank of England maintained the official bank rate paid on commercial bank reserves at 5.75 per cent

The People's Bank of China has raised the reserve requirement ratio maintained by the commercial banks with the central bank by 50 bps to 12 per cent with effect from August 15, 2007.

Bond Market

RBI has notified that all secondary market transactions in corporate bonds done in the OTC market have to be reported on FIMMDA's reporting platform for corporate bond transactions with effect from. September 1, 2007.

National Housing Bank (NHB), the refinancing and regulatory authority of housing finance companies in India , is of the opinion that the newly-coined financial product “reverse mortgage” would fall under the tax bracket unless the government clarifies on exempting reverse mortgage from taxation.  

S Sridhar , chairman and managing director of NHB, told Business Standard, there is a flaw under the present reverse mortgage draft, as there is no clarity on the taxation aspect of the reverse mortgage.”  He further informed that the senior citizens as well as the housing finance companies will be liable to taxation on the reverse mortgage products unless the government clarified the taxation of reverse mortgage.    

Under the present situation, he said, “The amount received by senior citizens every month are not income but the payment of the value of the house that he/she had mortgaged, thereby it attracts tax.”    Reverse mortgage, also called equity release scheme, allows senior citizens to take a loan against a house in instalments after retirement. The lender recovers the money by selling the house after the borrower dies.   

Foreign Exchange Market

The Federation of Indian Export Organisation has expressed disappointment over the first quarter review of monetary policy. In a statement, the FIEO President, Mr Ganesh Kumar Gupta, said that he expected the 2 per cent interest subvention on export credit to be extended to all export sectors across the board and irrespective of the investment made in plant and machinery.

To offset the adverse impact of rupee appreciation against US dollar, the Government had recently announced 2 per cent interest subvention on nine export sectors including leather and garments in the economy and low inflation should keep rates from rising further,” he said.

Commodities Futures derivatives

MCX on Tuesday launched future contracts on TD-4 grade of raw jute. Contract would be fair average quality with ex-Kolkata delivery. Spot price would be linked to Kolkata and the jute growing districts of Murshidabad, Nadia and North 24 Parganas. Trading lot is pegged at 10 tonne and prices will be determined per quintal basis.

Neither the rubber planters nor the users want the commodity to be traded on the commodity exchanges, says Mr K.T. Thomas, President, All-India Rubber Industries Association. The association represents all rubber-user industries, except tyres. Recently, there has again been a spurt in the rubber prices. The, prices are ruling at around Rs 83 a kg and the users apprehend further firming up of prices. Part of the reason, according to Mr Thomas, is the speculation on the commodity exchanges.  The other part is the emerging shortage in production due to a number of plantation workers taking to illness in the recent weeks, but an estimate of the shortfall is not yet available. Mr Thomas told Business Line that the commodity exchanges allow prices to vary up to Rs 2 over the previous close on either side.  Thus, effectively prices could swing up to Rs 4 on any day. This kind of movement, Mr Thomas says, does not happen in the spot market. He said that the AIRIA has written to the Ministry of Commerce seeking a ban on rubber futures trading on commodity exchanges.

The National Spot Exchange (NSEL), a Financial Technology-Multi Commodity Exchange (FT-MCX) group company, is awaiting e-market status from the Gujarat government for commencing its operations.  NSEL expects to obtain the licence this month. The e-market status will facilitate the exchange to start spot online countrywide trade in agri commodities.   

Explaining the genesis of the spot exchange, Anjani Sinha, managing director and CEO of NSEL, said spot trade through mandis recognised by the Agriculture Produce Market Committee (APMC) would continue despite the online trade facilitation. But given the fact that more options would be available, farmers/sellers would have opportunities for better price realisation for their output, Sinha said. Spot trade through mandis and electronic platform will complement each other. But some basic problems faced by farmers while selling goods in APMCs will be solved in case of electronic markets,” he added.

Corporate Sector

Bajaj Auto is setting up Rs 1,600 crore plant in Uttarakhand to manufacture four and three wheelers. The company has submitted the proposal to the Uttarakhand government. This is company’s second plant in Uttarakhand and is looking for the land near its first plant of two wheelers.

In order to cut the debt burden to fund its $13 billion acquisition of Corus, Tata steel has decided to increase the contribution from Tata Steel/Tata Steel Asia from $6.7 billion to about $7.4 billion. The rise in contribution will be covered by increasing the rights issue of 2 percent convertible preference shares announced earlier to Rs 6,000 crore from Rs 4,350 crore. However, the rights issue of equity shares will remain in the ratio of 1:5 at a price of Rs 300 per share.

US aircraft manufacturer Boeing has raised its current market outlook for India over the next 20 years (2007-2027) to 911 new commercial aircraft worth over $86 billion comprising of 55 regional jets, 674 single aisle aircraft, 173 twin aisle and 9 Boeing 747 or bigger airplanes.

Mahindra & Mahindra (M&M) has decided to spend Rs 6,400 crore over the next three years towards capacity expansion, product development and research and development. The company is planning to set two Greenfield plants, one near Pune and another one near Chennai in the coming year.

 In order to grow their business in the international markets I G Petrochemicals, world’s third largest producer of Phthalic Anhydride is planning for overseas acquisition in Germany worth over $ 300 million.

The flagship company of Jaypee Group, Jayprakash Associates has acquired the beleaguered Malvika steel at Jagdishpur for a consideration of Rs 207 crore. The group is planning to increase its capacity to 1 million tonne per annum with an investment of Rs 1,800 crore over the next three years.

Reliance Industries is planning to invest $14-billion for its oil exploration, production and laying transportation pipeline businesses in the next 2-3 years. The company will be investing over $3 billion for laying the 1,400 km East-West pipeline.

External sector

The exports of the country during the month of June 2007 have stood at US $ 11.86 billion (Rs 48,386.49 crore), a rise of 14 per cent over the corresponding month of the previous year. As against this, imports have stood at US $19.19 billion (Rs 78,267.77) crore during June 2007, an increase of 36.7 per cent over a year ago widening the trade deficit with a whopping 101.4 per cent to US $ 7.33 billion (Rs 29,881.28 crore) over the corresponding month of the previous fiscal year. Exports during the first quarter of the fiscal year 2007-08 have stood at US $ 34.3 billion – an increase of 18.1 per cent over the year; while imports for the period have stood at US $ 54.9 billion, a 34.3 per cent increase from US $ 40.88 billion in the corresponding period last year. The trade deficit for period has widened to US $ 20.6 billion, a sharp increase of 81 per cent over corresponding period of the previous year. Oil imports for the first quarter of 2007-08 have seen an increase of 4.2 per cent over the year while non-oil imports have escalated by 50.4 per cent during the period.

Exporting rubber

The rubber users are also irked by a recent comment made by the Chairman of the Rubber Board asking the planters to export the commodity, Mr Thomas said.  He noted that some planters tried to export rubber but suffered losses on account of the rupee appreciation. India is the fourth largest consumer of rubber in the world. There are about 5,000 units of rubber-based industries —30 large scale, about 300 medium scale and about 4,600 small and tiny scale units.  These units employ four lakh people and contribute Rs 4,000 crore to the national exchequer by way of taxes and other levies. Mr Thomas reiterated AIRIA’s often articulated dismay over the inverted duty structure affecting rubber imports. Tyres could be imported at 10 per cent duty. However, the customs duty on imported rubber is 20 per cent.

Telecom

Reliance Communication (RCom) has posted net profit of Rs 1,221 crore, higher by 138 per cent for the quarter ended June 30, as compared to Rs 513 crore in the corresponding period of the previous year.

Information Technology

Satyam Computer Services has signed two multi-million dollar contracts to support FIFA, the international governing body of football, and its major forthcoming events. As per the contract, Satyam would develop a customized event management system and build extranet and intranet over the next 12 months.

Close on the heels of bagging a 7 year, $250 million BPO project from Philips, Infosys Technologies has bagged a 5 year services and support deal from Calgary-based Canadian Pacific.

*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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