Current Economic Statistics and Review For the Week 
Ended September 22, 2007 (38^th Weekly Report of 2007)

Theme of the week:

I

Introduction

Thus, data read across columns, for each row indicate the percentage share of debt outstanding in that size class in the total debt of households against the given asset class. For instance, 32 per cent of debt of lowest AHC (Rs .< 15 000) are below Rs. 10,000 or only 3 per cent of the debt of this lowest class belongs to debt size of Rs. 100,000 or above. At the highest AHC, only 1 per cent of debt belongs to debt size of less than Rs. 10,000, while as much as 64 per cent of the debt of this higher asset class belongs to the highest debt size of Rs. 100,000 or above.. It is therefore,  interesting to see that share of debt (in total debt of AHC) in the lowest  two debt size classes decreases as the size of AHC size increases for rural households. On the other hand,in the case of the largest AHC, the proportion of debt in the debt class of Rs. 100,000 and above, was the maximum at 64 per cent of the total debt of the AHC. In the middle  debt size class, i.e., Rs. 20,000 to Rs. 50,000, the proportion of debt is generally well distributed across AHCs except for some decline in the share of the top AHC.   Broadly, it is observed that households in higher asset classes get large cash loans as per their capacity and assets backing them which appears as a rational financial feature..

            In respect of urban households also similar pattern is observed. However, the proportion of debt in large debt size classes is relatively higher in all AHC of urban households compared to those of rural households. The proportion of debt in the debt size class of Rs. 50 to Rs. 100 thousand has increased as AHC size increased, except the larger AHC. These distributional patterns can be seen more prominently, when identical debt over AHC size classes are considered and this has been attempted in the next section.

V

Asset holding viz.a.viz, Size of Debt

With a view to juxtaposing borrowing sizes against asset holdings, an attempt has been made by reclassifying AHCs and  debt size data with uniform and identical size classes for identical size classes for both variables in respect of  rural as well as  urban households. Thus AHC and all debt size class have been classified into 4 identical groups viz., ‘< Rs. 15,000; Rs. 15,000 – Rs. 30,000; Rs. 30,000 – Rs. 100,000; and = > Rs. 100,000 for the amount of cash loan outstanding as on 30-6-2002 for both rural and urban households and presented in Table 6. Incidently, a similar attempt was made by the NSSO for the 1991 AIDIS.

It may be seen from Table 6 that  for the lowest rural asset holding class, more than half of the total outstanding cash debt (TCD), as on 30-6-2002 (i.e 53.2 per cent) exceeded the value of their ssets, viz., Rs. 15,000. But the share of TCD in the next higher asset holding class for borrowing exceeding Rs.15, 000 but less than Rs. 30,000, dropped to 32.1 per cent. In the third AHC category,the share of TCD for households saddled with borrowings exceeding the value of their assets was less than 10 per cent of their total debt. Thus, public policies of encouraging the institutional agencies to advance loans to poor households has facilitated this situation wherein low asset holding classes have vbeen able to obtain debt beyond their asset holdings. Many of this lending  is not depend upon the asset holdings.

Among the urban households, for the lowest AHC, about 60 per cent of the TCD  exceeded the asset value of Rs. 15,000. The share of TCD in the next higher AHC though

dropped to about 57 per cent, but the share, per se, is quite high, as more than half of the  debt is beyond the value of assets of households. However, the share of TCD in the AHC category Rs. 30,000 to Rs. 100,000 for debt sizes exceeding Rs. 100,000 plummeted to just 20 per cent.

Appendix 1, 2, 3 and 4 depicts state wise distribution of number of households and total outstanding by size of debt.

___________

*This note had been prepared by R.Krishnaswamy.

Highlights of  Current Economic Scene

AGRICULTURE  

As per the first Advance Estimates released by Ministry of Agriculture, production of kharif foodgrains during 2007-08 would touch 112.24 million tonnes higher by 1.72 million tonnes from 110.52 million tonnes produced last year, though it has been lower compared to  the record level of 117 million tonnes  attained in  2003-04. Within foodgrains, kharif rice output is estimated to be 80.15 million tonnes, one of the highest as adjacent to 80.52 million tonnes recorded in 2001-02. However, production of kharif maize is estimated to cross 13 million tonnes, exceeding the previous record of 12.73, which was attained during the period of 2003-04. Output of kharif pulses, kharif oilseeds (with soyabean likely to reach the highest ever production level of 9.04 million tonnes) and jute are evaluated to be higher than last year.. It is also projected that farmers would be harvesting crops of cotton and sugarcane on a large scale at 22.94 million bales and 345.62 million tonnes, respectively. Over all it is expected that country’s production of cotton; soyabean, sugarcane and kharif maize would increase tremendously this year.

The central government is likely to announce a minimum support price (MSP) for wheat and rice before the beginning of their respective sowing seasons. The Commission for Agricultural Costs and Price (CACP) has forwarded the proposal to the center, under which it has recommended minimum support price (MSP) of Rs 1000 per quintal to be provided for the wheat crop sown subsequently in 2007-08 rabi season.

Central Government has unchanged the base price or tariff value of imported edible oils. The base price of imported crude palm oil has been set at US $ 447 per tonne and that of crude Soya oil at US $ 580 per tonne. As per industrial players, this decision undertaken by government would be due to high-ceiling prices of oil in the international market.

Favourable rainfall during current year’s monsoon in the moong growing districts of Rajasthan have lead to increase the production of moong bean (green or golden bean) for the short term, which is expected to touch 8.75 - 9 million bags, i.e., around 25 per cent higher than last year’s output of 7 million bags of 100 kg each, moong prices were floating around Rs 2,400-2,600 per 100 kg in the month of August, it has come down to Rs 2,000-2,200 in the September. It is expected that in the forthcoming months, prices of moong bean would start sloping down not only because of anticipation of bumper crop but also due to entering of the new crop in the market.

According to National Horticultural Research and Development Foundation [NHRDF], onion prices have started rising again, expecting possibility of reduction in output and/or decline in yield of onions in the backdrop of heavy rainfall in onion producing areas of Maharashtra , Karnataka and Andhra Pradesh causing damage to the crop. Wholesale prices in India ’s largest onion trading center, Lasalgaon have escalated to Rs 1,785 per 100 kg as on September 19 2007, from Rs 1,300 on September 12 2007. It has been estimated that the area under kharif crop has increased by 30 per cent in kharif season 2007 due to which it was expected that prices would come down significantly and even production would be subsequently increased, but now t prices are expected to remain identical.

India has decided that it would try to avoid purchasing of grain from international market as it have sufficient supplies to meet demand, due to which global prices are likely to come down, as it had been doubled since past year. According to Food Corporation of India , country is expected to have 5 million tonnes of stockpiles by April 1 2008, more than the 4 million tonnes needed for emergencies. India holds nearly 10.9 million tonnes of wheat in state warehouses as per the reference on September 7 2007, which is sufficient to last year’s stock until July. The country aims to produce 75.5 million tonnes of the grain next year, one of the maximum in seven years, while, it is expected that the South Asian countries are most likely to produce 74.9 million tonnes in the year ended by June, compared with 69.35 million tonnes a year earlier. A decision embarked by India, the world’s second-biggest consumer of the grain, to hold back from clutches of buying more wheat from international market would help to curb gains in prices of wheat had reached a record level in September 2007, not only due to dry weather that had damaged crops from Canada to Australia, but also because of demand that have sharply increased from Egypt to India.

Union Minister of Science & Technology and Earth Sciences stated that Indian Metrological services have formulated new Met policy, which aims to achieve digitialisation of the Met department and to have most modern Met system by 2013. To be successful in this assignment, it requires package of Rs 900-crore, so that it would modernise and restructurise the country’s meteorological services. If this scheme gets approval from the cabinet, it would then purchase approximately 50 doppler radars, 4,000 automatic rain gauges, 1,200 automatic weather stations, a network of wind profilers, and would establish their real time connectivity. In addition to it, they have plan to launch 24x7 weather channel that would provide public and its users best possible weather inputs with in genuine time.

The National Horticultural Research Development Foundation (NHRDF) is encouraging the farmers residing in Pune and Nashik districts of Maharashtra and Bhavnagar districts of Gujarat to stimulate the cultivation of yellow onion as it have a massive demand from the European market. To make this proposal successful, NHRDF has examined varieties of yellow onion grown in Europe , from which it has chosen nearly 4-5 varieties with reference to Indian climate and has imported it for cultivation and has also planned to convey guidance to farmers. As per the record available of 2006-07, accounts that nearly around 100 tonnes of yellow onions had been produced and exported to the international market, while, it is expected that during the current year it would account to 800 tonnes.

As per the Coffee Board, the unit value of Indian coffee in the overseas market has increased to Rs 85,721 per tonne during January-September 10, 2007, from Rs 76,592 per tonne in the corresponding period a year ago. This is due to strong international prices and rising global consumption. For instance, the unit price for Indian coffee at international market had increased to Rs 87,403 per tonne in January to March 2007, further it declined to Rs 84,667 in the period April-June 2007, which is still up as compared to Rs 78,580 crore during the same period last year. According to International Coffee Organisation (ICO), preliminary estimates for 2007 has pegged the world coffee consumption to be at least 122 million bags, which is more than 2006 estimation of 120.27 million bags and 118 million bags in 2005. As per the Spices Board, cardamom production during 2007-08 is likely to decrease by 30 per cent as compared to last year, since arrivals in the market have drooped by 40-50 per cent at major auction centers. This is due to inconsistent climate in the form of drought during the period of March –April 2007 and excessive rains in the month of July 2007 in the major cardamom growing regions. Cardamom production in the county is estimated to be 11,500 tonnes during the period of 2006-07, while spices exported to international market have been valued to be around US $793 million during 2006-07, and is expected that exports of spices are likely to cross US $1 billion mark by 2008-09.

According to Rubber Board, the growth rate of natural rubber production is slowing down in comparison to the growth rate of rubber consumption. It is estimated that natural rubber consumption would be 4 per cent in 2008 (January-December) as compared with 3.6 per cent output growth rate. Further in 2009, it is expected that consumption would grow by 4.8 per cent, while output growth would be placed at 3.6 per cent. As per the project undertaken by the International Rubber Study Group (IRSG), rubber consumption is estimated to increase from 21.41 tonnes in 2006 to 24.20 tonnes in 2009, at an annual growth rate of 4.2 per cent per year, whereas world stock of natural rubber in 2008 and 2009 would be more than 2 tonnes.

Bihar State Sugar Corporation is likely to offer 8 out of the 15 sugar mills on a long-term lease i.e. around 90 year period, while, remaining 7 would be planted to some other industrial use, this decision was undertaken due to slowdown of the sugar industry and most of these mills were lying closed for more than a decade and had a financial liability of Rs 700 crore under various heads. The state government has determined that the funds raised by selling or leasing out the mills would be utilised for clearing the liabilities of the mills, as it has already paid cane arrears of Rs 8.84 crore that these mills owed to farmers.

The National Bank for Agriculture and Rural Development (Nabard) has approved Rs 52.15 crore to West Bengal under the scheme ‘Rural Infrastructure Development Fund (RIDF) XIII’ for the construction and enhancement of 50.40 km road length in the remote areas of Darjeeling districts and improved brick paved-black topped road length of 353.20 km in the Sundarbans region. The state itself has allocated a normative allocation of Rs 570 crore under RIDF-XIII, while bank has already sanctioned 22,064 projects with RIDF assistance of Rs 4,031.82 crore.

The state government of Kerala has commenced a bill known as `Kerala Conservation of Paddy Land and Wetland Bill’, under which it would attempt to bring legislation that might ensure conservation of paddy land and wetlands in the state. If this bill gets approval in the state assembly, it would then regulate illegitimate and immense revival of paddy fields and other wetlands, whereas random extraction from the paddy fields would be helpful to improve overall ecological conditions of the state. Introduction of this Bill would play a crucial part in the state, as there has been radical shift of rice and subsistence food farming to cash crops farming and for some other related purposes. The areas under paddy cultivation have drastically declined from over 8 lakh hectares in early 1970s to nearly two lakh hectares in 2000s mainly due to conversion of paddy land. As per the latest estimates, only 2.76 lakh hectares of paddy land is available in the state and is expected that if the present situation persisted in the near future, the remaining land would also be misused for some other purposes.

Inflation

The annual point-to-point inflation rate based on wholesale price index (WPI) declined to 3.32 percent for the week ended September 08,2007. During the comparable week of the earlier year, it was 5.22 per cent.

During the week under review, the WPI rose by 0.1 per cent to  214.7 from 214.4 at the previous weeks’ level (Base: 1993-94=100). The index of ‘primary articles’ group, (weight 22.02 per cent), rose by 0.2 percent to 227.9 from its previous week’s level of 227.5, mainly due to higher prices of fruits and vegetables, condiments and spices, barley and wheat.

Index of ‘fuel, power, light and lubricants’ group (weight 14.23 per cent) declined by 0.1 per cent to 321.7 from 321.9, because of the lower price of naphtha.

The index of ‘manufactured products’ group rose by 0.2 per cent to 186.2 from 185.9 for the previous week due to higher prices of bran, suji, rice bran oil, oil cakes etc.

The latest final index of WPI for the week ended July 14, 2007 has undergone upward revision; as a result, both the absolute index and the implied inflation rate stood at 213.6 and 4.76 per cent as against the provisional data of 212.9 and 4.41 per cent.

Banking

Standard Chartered Plc will be acquiring American Express Bank for around $860 million in cash to boost its private banking and correspondent banking services. The acquisition would also give the British banking major additional branch licences in India .

Financial Sector

Capital Market

Primary Market

eClerx, a mumbai  based knowledge process outsourcing (KPO) firm, is planning to enter the capital market with an initial public offering of around Rs 100 crore,has already filed its draft red herring prospectus with the Securities and Exchange Board of India (Sebi) expects to hit the bourses by the year end and thus becoming the  first Indian KPO player to do so.         

Secondary Market

During the week under review, the BSE sensex crossed the 16,000 important milestone as it gained 960.43 points on September 21 to close at 16564.23 points. Similarly, NSE nifty surged by 319.55 points to reach 4837.55 following US fed rate cut evoked expectations of further investment inflows. The banking sector saw huge gains spurred by expectations of similar interest rate stance.

Among the sectoral indices of BSE, Oil and gas index recorded the highest gains of 11.36 per cent as ONGC ‘s bonus and share split news and Reliance’s expansion plans pushed up the index. BSE healthcare, It sector registered negative returns over the week.      

 According to Hedge Fund Net (a tracker of funds), the average return for India focused hedge funds was 53.6 per cent, dwarfing the 45 per cent return on the sensex. India focused hedge funds have delivered a return of 19.6 per cent so far this year and  are one of the best performing group of the hedge funds in the last five and a half years.

   The year to date collections of mutual funds this year were Rs. 12000 crores through new fund offerings (NFO) which is much lower compared to last year’s January -August figures. This year (January to August) saw a total of 54 NFOs collecting Rs 15409 crore, whereas in the same period last year  the collection was nearly 27000 crore.

The Securities and Exchange Board of India (Sebi) has ruled that non-convertible portions of partly convertible debentures cannot be bought back under Sebi 's buyback regulation, and nonconvertible debentures have not been notified by the Government as "specified securities" under Section 77 A of the Companies Act 1956. This follows a reference made by Insilco Ltd regarding the premature redemption of the non-convertible portion of its partly convertible debentures issued in March 2000.

The Sebi proposes to tighten the eligibility norms for registration of stock market intermediaries such as merchant bankers, registrars to market issue, brokers and custodians, among others, to bring them in sync with changes in regulatory norms after a gap of 15 years.  Sebi is reviewing eligibility guidelines because size and capital requirement for market intermediaries are very low in the current guidelines. Thus, it will be relaxing the norms for the listing of the small and medium companies on the proposed SME exchange.

Derivatives 

The nifty closed at 4837 in spot with September futures settled at 4852 and October futures at 4833. The premium of September over spot and premium of September over October implies that market would have to remain strong to justify such high premium.

In the nifty options market, open interest has risen across all three terms. The put-call ratio in terms of open interest has risen to 1.67 suggesting bullish momentum and carryover is likely ot be record levels. 

Government Securities Market

Primary Market

The RBI has announced the re-issue of 5.87 per cent 2010 and 5.48 per cent 2009 under the Market Stabilisation Scheme (MSS), for Rs.5,000 crore (nominal) each. Both the auctions will be conducted on September 26, 2007 through a price-based auction using multiple price method.

Eight State Governments auctioned 10 year paper maturing in 2017 through an yield based auction using multiple price auction method on September 20, 2007 at cut-off yields ranging from 8.14-8.50 with lowest for Tamil Nadu and highest for Jammu & Kashmir.

The government has announced the issue of 8.13 per cent 2022, 8.28 per cent 2027 and 8.33 per cent 2032 for an aggregate amount of Rs. 2495.28 crore, Rs. 1252.24 crore and Rs. 1522.48 crore respectively to 19 nationalised banks on September 21, 2007. 

On September 19, 2007, RBI conducted the auctions of 91 day and 182 day T- bills for the notified amounts of Rs.3500 crore (out of which Rs.3000 crore under MSS) and Rs.2500 crore (out of which Rs.2000 crore under MSS) respectively. The cut-off yields for the 91 day T-bills and 182-day T- bills were 6.9781 per cent and 7.2523 per cent respectively.

Secondary Market

During the week, call rates ruled higher in the range of 7-7.2 per cent against 4-4.25 per cent due to tight liquidity conditions because of advance tax payments. Following the US Fed decision to effect a cut in its benchmark rate, there was a rally in gilt-edged market. However, shrinking liquidity and high international crude oil prices turned the sentiments cautious.

Bond Market 

The issuers in corporate bond market preferred to wait and watch as the liquidity situation remained strained and impact of softening US treasury yields on the domestic market. 

Foreign Exchange Market

The rupee jumped 1.35 per cent against the beleaguered dollar boosted by inflows and anticipation that broader yield gap would be in the favour of the rupee and would entice more investment flows in the short and medium term.

After an uncertain start the rupee appreciated to 55 paise per dollar over a week. The rupee breached the 40-mark against the dollar on September 20 to close at 39.88/89 after the sensex rose to a record following the US Federal Reserve’s 50 basis point interest rate cut on September 18. The domestic currency has not seen such levels since May 1998 (39.22). The rupee has been Asia ’s best-performing currency this year climbing 11 per cent against the dollar due to heavy inflows into the Indian market. The rupee appreciation was aided by frantic selling of dollars by banks and exporters. Forward premia rose immediately in reaction to the US interest rate cut that widened interest rate differential.

Commodities Futures derivatives

According to the Union Agriculture Ministry’s First Advance Estimates of crop output, released here on September 19, the country’s production of cotton, soyabean, sugarcane and kharif maize is expected to scale all time highs. Production of kharif foodgrains during 2007-08 will touch 112.24 million tonnes (mt). This is 1.72 mt more than that of last year, though below the record 117 mt level of 2003-04.Within foodgrains, kharif rice output is estimated at 80.15 mt, the highest since the 80.52 mt of 2001-02. But production of kharif maize is slated to cross 13 mt, surpassing the previous record of 12.73 mt attained in 2003-04.While output of kharif pulses, oilseeds and jute are assessed to be higher than last year, farmers are going to harvest record crops of cotton and sugarcane, at 22.94 million bales and 345.62 mt, respectively. Similarly, soyabean production, at 9.04 mt, would scale a new high.

National Multi Commodity Exchange (NMCE) introduced futures contracts in menthol crystal in three series as per the approval of Forward Market Commission (FMC) on September 18,2007, which will expire on October 15, November 15 and December 15, respectively. Indian Energy Exchange (IEX) has recently received approval from the Central Electricity Regulatory Commission (CERC) and is expected to be operation by the year-end. IEX is promoted by Financial Technologies along with a consortium of Power Trading Corporation, Tata Power and others.

Corporate Sector

As per Society of Indian Automobile Manufacturers (SIAM), against a 14.3 per cent decline in the domestic market, motorbike exports from India has increased by 35.5 per cent to 3,21,321 units in the April-August period in the current fiscal from 2,37,103 units in the same period last year, led by Bajaj Auto. High exports are considered relevant in view of a greater thrust companies are giving to their overseas exposure. In order to reduce domestic market risks the Indian automobile companies are expanding to new geographies. TVS have exported 39,388 motarbikes, while Yamaha exported 29,763 motarcycles and Hero Honda sold 35,228 units in the overseas market.

The rupee appreciation may be good for the economy and other sectors, but not for the exporters as it impacts their overall earnings. As a result, exporters have been demanding refund of the service tax, which is levied at 12.36 per cent including cess. After over 5 months of wrangling with the commerce ministry, the finance ministry finally has decided to provide exporters some relief on the service tax front. It has notified refund of service tax paid by importers on services like transport of goods, including port services for export, transport of goods by road from a container depot to port for export and transport of export goods in containers by rail from the ICD to the port of export. However, services like foreign sales commission, foreign traveling expenses, bank charges, professional fees, participation in trade fair abroad etc have been left out. Exporters were expecting a total relief of Rs 2,000 crore if the government had included all the services in this exemption net. However, with certain services left out, the relief amounts to only Rs 400-500 crore. Exporters complain that one of their major demands to provide service tax refund on commission to agents has not been addressed.

The state-run Bharat Heavy Electrical Ltd (BHEL) has drawn up an ambitious plan to achieve a turnover of Rs 45,000 crore by the end of 11^th Plan period (2011-12). BHEL has tied up with Alstom, Siemens for acquiring cutting-edge technologies. The company is also introducing gas turbines. At present, BHEL have an order book of Rs 55,000 crore by end of 2006-07.

To further strengthen its reach in the international market, Indian Hotels Company Ltd (IHCL), through its wholly owned subsidiary Samsara Properties Ltd has acquired a strategic stake of 10 per cent in Orient Express Hotels Ltd., a leading US-based luxury hotel, for $211 million. IHCL currently manages, owns and operates 83 hotels worldwide, of which 66 of them are in India .

The name of the country’s most popular car brand, Maruti Udyog Ltd., has been changed to Maruti Suzuki India Ltd with effect from September 17, 2007.

Insurance

With around 80 per cent of its new business premium coming from unit linked insurance products, the Life Insurance Corporation of India (LIC) has purchased equity shares of Rs 12,000 crore as on August 31, 2007. Driven by ULIPs, LIC’s investment in equity markets is set to double in the current financial year.

Information Technology

Moser Baer India Ltd is investing Rs 2,000 crore in Tamil Nadu to manufacture photovoltaic films. The project will also attract major investments by the vendors and product suppliers to the core manufacturing facility and would employ over 4,000 high-end engineers and researchers.

Telecom

Vodafone Essar has decided to launch Vodafone brand in India from September 21, 2007 onwards. The brand Hutch will be transitioned to Vodafone across India . The brand change over the next few weeks will be unveiled nationally through a high profile campaign.

In the month of August Bharti Airtel have added around 2.05 million users, taking its subscriber base to 46.81 million, against 44.76 million at the end of July. Vodafone Essar added 1.68 million users in the month, thus taking its total subscriber base to 34.12 million from 32.43 million in July. An addition of 8.66 lakh users helped Idea’s subscriber base touch 17.87 million.

*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

We will be grateful if you could kindly send us your feed back at epwrf@vsnl.com