Current Economic Statistics and Review For the Week Ended September 15

Report of the Working Group on Savings for the
Eleventh Five-Year Plan (2007-08 to 2011-12) *

As the Indian economy was stepping into the 11^th Five-Year Plan (FYP) period, the Planning Commission, Government of India, had set up a Working Group on Savings (WGS) to assess the likely resources that could be generated to achieve the targets set for the Plan period for various macro-economic spheres, in particular GDP, savings and investment. The WGS, chaired by Dr. Rakesh Mohan, Deputy Governor, Reserve Banking of India (RBI), assessed the likely resources and submitted its report to the Government of India in December 2006. Subsequently, the RBI published the Report in its monthly Bulletin (May 2007). An attempt is made in this paper to summarise the Report of Working Group with a brief review of the targets set and achieved for the 10^th FYP period.

The target for real GDP growth rate for 10^th FYP had been set at 8 per cent, alongside setting growth targets for different economic activities, as given in Table 1. As shown in the same table, the target for GDP growth has been more of less attained. However, considering different economic activities, the targets have been achieved more than the set rates in some sectors [like mining and quarrying, construction] while in a few others actual growth rates have been lower than the targets [like (i) agriculture and allied activities, (ii) manufacturing (iii) electricity, gas and water supply, (iv) finance, etc.] Individual components of services sector, except finance, insurance, etc., could not be compared for want of the targets for the each of the combined sub-sectors. Apart from the non-achievement of the near 4 per cent growth in agriculture, there have been wide inter-year fluctuatations in growth in the sector.

It may be seen from Table 2 that the gross domestic saving (GDS) as percentage of GDP at current market prices has increased from 26.4 per cent in 2002-03 to 32.4 per cent in 2005-06 (data for 2006-07 are not available yet), thus resulting in an average rate of 29.9 per cent (4-year average); this shows that the target saving rate of 26.8 per cent for the tenth plan period has been exceeded. It appears from the investment rate for 2006-07 released by the CSO, that the saving rate for the same year could be slightly lower than that in 2005-06 assuming a current account deficit (CAD) of at least 1.3 per cent. In any case, the actual saving rate for the X^thPlan period works out to be higher than the target rate.

	Table 1: Sectoral Growth Rates of GDP: Tenth Plan Period

						(Amount in Rs. Crore)
Economic Activity	2006-07	2005-06	2004-05	2003-04	2002-03	Tenth Plan	Target
	(RE)	(QE)				Average	Growth
Agriculture,Forestry	525875	512147	483080	483274	439321
and Fishing	2.68	6.02	-0.04	10.00	-7.22	2.29	3.97
Industry	757641	683028	623327	567949	528926
	10.92	9.58	9.75	7.38	7.06	8.94	9.40
Mining and Quarrying	56912	54128	52250	48626	47168
	5.14	3.59	7.45	3.09	8.85	5.63	4.30
Manufacturing	442503	393956	361115	332363	311685
	12.32	9.09	8.65	6.63	6.81	8.70	9.82
Electricity,Gas and	61671	57401	54531	50735	48423
Water Supply	7.44	5.26	7.48	4.77	4.75	5.94	7.99
Construction	196555	177543	155431	136225	121650
	10.71	14.23	14.10	11.98	7.95	11.79	8.34
Services	1564640	1409356	1283253	1171368	1079486		9.44
	11.02	9.83	9.55	8.51	7.38	9.26	*
Trade,Hotels, Transport,	768578	680237	616024	555303	495494
Storage, etc.	12.99	10.42	10.93	12.07	9.24	11.13	*
Financing,Insurance,Real	396394	358535	323187	297326	281611
Estate & Busin's Services	10.56	10.94	8.70	5.58	7.98	8.75	11.69
Community, Social and	399668	370584	344042	318739	302381
Personal Services	7.85	7.71	7.94	5.41	3.93	6.57	*

Gross Domestic Product	2848157	2604532	2389660	2222591	2047733
at Factor Cost	9.35	8.99	7.52	8.54	3.79	7.64	7.93

*: target rates are set separately: Trade: 9.44 per cent,Communication: 15 per cent, Rail transport: 5.40 per cent;
Other Transport services: 7.54 per cent; Public Adm: 6.43 per cent;Others: 9.26 per cent.
Sources: Tenth Five Year Plan, 2003-2007,- Dimensions and Strategies, Planning Commission, Govt. of India ,
National Accounts Statistics, Central Statistical Organisation, Govt. of India .

	Table 2: Composition of Gross Domestic Savings - Tenth Plan Period
			(at current prices)
						(Amount in Rs. Crore)

Sector	2006-07	2005-06	2004-05	2003-04	2002-03	Plan total	Plan Target
	(RE)	(QE)				/ average	% to gdpmp

Public Sector		71262	74682	31822	-14057
% to GDPCMP		2.00	2.39	1.15	-0.57	1.24	-2.41
Government Adm.		-68270	-60904	-83233	-113394		2.85
Pub. Enterprises		139352	135586	115055	99337		0.44

Private Corpor.Sector		288430	223512	131355	103965
% to GDPCMP		8.09	7.15	4.75	4.23	6.05	6.1
Household Sector		797117	674834	657327	559074
% to GDPCMP		22.35	21.58	23.77	22.74	22.61	20.3
Gross Domestic		1156809	973028	820504	648982
Savings (GDS)
GDS Rate #		32.4	31.1	29.7	26.4	29.9	26.84
CAD,		47665	13338	-45380	-28486
% to GDPCMP		1.34	0.43	-1.64	-1.16	-0.26	1.57
Investment rate @ #	32.41	30.97	28.36	28	25.2	28.99	28.41
Note: Estimates of gross domestic savings and its sectoral composition and CAD are not available for 2006-07.
@: excludes valuables
#: As per cent ot GDPCMP		GDPCMP: Gross domestic product at current market prices.
Sources: As given in Table 1.

The Working Group has been set up by the Planning Commission to undertake objective and scientific estimation of the magnitude of savings during the Eleventh FYP period, under the chairmanship of Dr. Rakesh Mohan, Deputy Governor, RBI. The composition and the terms of reference of the group are given in Annexure 1. The Report of the Group has been organised into four sections. Section I presents the composition and terms of reference of the Group, as also the rationale for the setting up of sub-groups and their proceedings. Recent trends in savings in the Indian economy, along the elaboration of certain conceptual issues, are presented in Section II. Section III discusses the projection procedure and presents the estimates of savings prepared by the five sub-groups along with the assumptions made in such estimations. Overall savings for the Eleventh Plan period are presented in the last section.

To complete the tasks set before it, the Working Group has set up five sub-groups for estimation of (i) Household Sector Savings, (ii) Private Corporate Sector Savings, (iii) Public Sector Savings, (iv) Foreign Savings and (v) Flow of resources for Private Investment for SME and Agricultural Sector. The Group took cognizance of the broad transformation that has been taking place in the behaviour of savings over decades in general, as suggested by the Chairman, with a specific focus on the trends in the past five years and the possible impact of such beahaviour on the future quantum and composition of savings, besides other assumptions/factors, for estimation of savings of different sectors and the flow of resources for private investment for SMEs and agriculture sector.

The Working Group reviewed the recent trends in savings in Indian economy is next section, besides discussing the theoretical underpinnings of importance of savings in emerging market economies, like India . The estimates of savings both at overall and sectoral levels viz., public sector, private corporate sector and households, are disseminated by Central Statistical Organisaiton (CSO). At sectoral level, estimates of saving for the public sector, and households saving in physical assets and compiled by CSO while those for private corporate sector and households saving in financial assets are compiled by RBI1.

The Report presented a brief account of literature on determinants of savings. Based on the literature, major determinants of savings have been identified as: GDP growth, income and wealth, demand for liquidity, income volatility, real interest rate, level of per capita income, rate of inflation, spread of banking facilities, and age structure/dependency ratio. It also highlighted factors that could lead to the achievement of higher savings and growth in the Eleventh FYP period in India, such as (i) improvements in India’s macro-economic performance, creation of conditions that are conducive to encourage higher savings, (ii) the annual growth of more than 8 per cent in real GDP in the last three years and the likely continuance of a ‘virtuous cycle’ of growth and savings that appear already under way, (iii) a huge pool of younger population that enter into labour force and be gainfully employed in production, generating higher levels of incomes, (iv) the substantial progress made in human development over the years and the impact of National Rural Employment Guarantee Scheme, (v) the reduction in poverty providing an impetus to demand in the economy, (vi) reduction in inflationary pressures in the recent period and current stable inflationary expectations and (vii) the financial sector reforms since 1992-93 which add to a series of financial innovations.

The report discussed the trends in domestic savings since the 1950s. Importantly, the gross domestic savings (GDS) rate increased from 23.5 per cent [as per cent to gross domestic product of current market prices (GDPCMP)] in 2000-01 to 29.1 per cent in 2004-05, the highest saving rate ever achieved since 1950-51. The household sector is the major contributor whose savings rate has formed 22.0 per cent in 2004-05. The savings of the household sector comprise physical saving and financial saving, with the former being in the range of 11 to 12 per cent and the latter in the range of 10.2 to 11.5 per cent during 2001-02 to 2004-05; with physical saving having higher share than financial saving, in 2004-05. The saving of the private corporate sector formed 4.8 per cent and that of public sector at 2.2 per cent in 2004-05. The report presented briefly, the recent trends in savings and investment rates in select Asian countries (Annexure 2).

The Group considered it desirable to estimate the savings in a macro framework and compare it with aggregation of the estimates of sectoral savings obtained by the sub-groups independently. The group adopted “elasticity-based” approach with respect to GDPCMP. The regression of GDS on GDPCMP from 1995-96 to 2004-05 provided an elasticity of 1.17, and the forecasted GDS under four alternatives of GDP growth rate, are as given in Table 3:

The Report has highlighted various issues that had rendered the estimation process complex. Since the estimation of savings by the sub-groups are made in a period of rapid change, savings rate may be expected to be higher towards the end of the Eleventh Plan, based on responses to the policy measures.

The saving of household sector in the form of financial assets has shown a declining trend in recent years, whereas that in physical assets has shown an increasing trend. With financial deepening and move towards financial inclusion, financial savings (net) should improve. In this context, the working group has separately examined the issue at a disaggregated level - gross financial savings (GFS) and financial liabilities (which are netted from GFS), and physical savings to the extent that physical savings of the household sector are a residual. Secondly, according to the conventional wisdom, if corporate savings go up, household savings need to come down, to the extent that unincorporated entities get incorporated and such savings are reflected as corporate savings. An examination of data indicated a declining trend in the share of the unincorporated sector. This aspect was also considered in the estimation process.

In respect of the corporate sector, the major issues considered were: (i) higher GDP growth, productivity improvement vis-à-vis a declining role of savings, (ii) classification of corporate finance into sectors like infrastructure, services, etc., to capture regional desparities of GDP growth, (iii) lack of theoretical models on the behaviour of corporate savings, (iv) role of business cycles of the economy vis-à-vis corporate performance, (v) interest rate scenario, (vi) movements in ICOR, (vii) movements in corporate tax rate, (viii) FDI inflows, (ix) stock performance and (x) credit flow to private sector.

For public sector, the issues considered include (i) impact of the proposed sixth pay commission award, (ii) reduced surpluses of public sector enterprises, particularly in the oil sector, (iii) adherence to FRBM path by Central and State Governments, (iv) non-availability of deficits of central and state governments, which has bearing on public sector savings and (v) gross market borrowings and their impact on public sector savings. The sustainability of current account deficit (CAD) is the main issue in regard to foreign savings is considered. The sub-groups estimations have been arrived at broadly against a stable global economic environment.

The Working Group built multiple scenarios for the growth rates of GDP at 7.0 per cent, 8.0 per cent, 8.5 per cent, and 9 per cent for the Eleventh FYP period although the group assumed the rate of 8.5 per cent as the working estimates for the Plan period.

It was also assumed that inflation would be in the range of 4.5 to 5.0 per cent annually during the Plan period. It has been observed that inflation based on GDP deflator has been in lower than that of WPI based inflation. For the purpose of the estimation of savings, in the absence of GDP deflator for the 11^th Plan period, the sub-groups have adopted the WPI based inflation at 5.0 per cent as outlined in the Approach Paper.

Besides the broad issues mentioned earlier, the Sub-group on Household savings had considered a plethora of issues while projecting the households savings for the Eleventh Five Year Plan period. Such issues are financial deepening and its impact on household savings, and instrument-wise issues of financial instruments based on emerging trends in preference pattern for households. In particular, these result in assuming the following:

(i) It is expected that households will increase their preference for bank deposits in the medium term, with the focus on financial inclusion and increased coverage for rural and semi-urban areas under banking facilities.

(ii) The sub-group expects to continue the upturn in households investment in shares and debentures of corporate sector in view of congenial investment climate and strong corporate profitability;

(iii) Change in provisions governing small saving instruments under ‘claims on government’ and the possible impact on households savings in medium term;

(iv) Contractual savings would continue to increase with pension reforms and several policy initiatives under way for insurance penetration;

(v) On the liabilities side, broad based strengthening of economic activities to continue, to raise the credit distribution, in particular, the agriculture and housing credit, spurred by attractive income incentives;

(vi) Considering the anticipated impact of 6^th Pay Commission, it has been estimated that one percentage point decrease in public savings is expected to increase the households saving by one percentage point.

The estimates for the 11^th FYP have been worked out based on projections of elasticities of the instrument-wise savings of household sector with respect to GDPCMP. This method has been augmented with a judgemental approach following emerging trends, on different financial instruments of savings.

Based on the above, the projections of household savings are given in Table 4, for initial and terminal years of the 11^th FYP and average for the Plan under the four alternatives2 of GDP growth. Household saving (sum of financial and physical savings) as a percentage to GDPCMP has been estimated in the range of 24.1 per cent (under scenario 1) to 24.4 per cent under scenario-4, while the saving rate stood at 22.4 per cent in 2005-06 of the Tenth FYP period.

Table 4: Projection of Household Sector Savings for the Initial and Terminal Years of the 11th Plan Period in the Four Growth Scenarios
(Per cent of GDP at CMP)
Item		Scenario 1 (Growth 7 per cent)			Scenario 2 (Growth 8 per cent)			Scenario 3 (Growth 8.5 per cent)			Scenario 4 (Growth 9 per cent)
Item		2007-08	2011-12	Avg.	2007-08	2011-12	Avg.	2007-08	2011-12	Avg.	2007-08	2011-12	Avg.
Instruments of Financial Saving
1.	Currency	1.4	1.7	1.6	1.4	1.8	1.6	1.4	1.8	1.6	1.4	1.8	1.6
2.	Bank Deposits	6.2	8.0	7.0	6.2	8.2	7.2	6.2	8.3	7.2	6.3	8.4	7.3
3.	Non-Bank Deposits	0.1	0.1	0.1	0.1	0.1	0.1	0.1	0.1	0.1	0.1	0.1	0.1
4.	Life Insurance Funds	2.8	3.8	3.3	2.8	3.9	3.3	2.8	4.0	3.4	2.9	4.0	3.4
5.	Provident & Pension Funds	2.1	2.5	2.3	2.1	2.5	2.3	2.1	2.5	2.3	2.1	2.5	2.3
6.	Claims on Government	3.1	2.8	3.0	3.1	2.8	3.0	3.1	2.8	3.0	3.1	2.8	2.9
7.	Shares and Debentures	0.5	1.1	0.7	0.5	1.2	0.8	0.5	1.2	0.8	0.5	1.2	0.8
8.	Units of UTI	–0.2	–0.2	–0.2	–0.2	–0.2	–0.2	–0.2	–0.2	–0.2	–0.2	–0.2	–0.2
9. Trade Debt		0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
A.	Gross Financial Saving (1 to 9)	15.9	19.7	17.7	16.0	20.2	18.0	16.1	20.4	18.1	16.1	20.6	18.3
B.	Financial Liabilities	5.3	7.8	6.5	5.3	8.1	6.7	5.4	8.3	6.7	5.4	8.5	6.8
C.	Household (Net)
	Financial Saving (A-B)	10.7	11.9	11.3	10.7	12.0	11.4	10.7	12.1	11.4	10.7	12.2	11.4
D.	Household Physical Saving	12.4	13.3	12.9	12.4	13.4	12.9	12.4	13.5	12.9	12.5	13.5	13.0
E.	Household Saving (C+D)	23.1	25.2	24.1	23.1	25.5	24.3	23.2	25.6	24.3	23.2	25.7	24.4
Avg. : Average.

The private corporate sector comprises (i)non-government non-financial companies, (ii) commercial banks and insurance companies in private sector, (iii) cooperative banks, credit societies and non-credit societies, (iv) non-banking financial companies in the private sector and (v) quasi corporate bodies. Projections have been worked out separately for the constituents of the sector under the four growth assumptions of GDP. In the process, ratio approach has been adopted for non-financial corporate sector while past trends in growth rates and ratios have been adopted for financial sector.

The projections of the second, third and fifth constituents, stated above, of the sector have been worked out based on past trends. The assumptions made to obtain the projections of saving of these constituents, are given in Table 5.

In the case of financial and investment companies, certain growth rates are also assumed for 2005-06 and 2006-07 in the absence of data, on these companies for these two years. Assuming continued good performance in these two years, the retained profits have been estimated as 20 per cent of main income for these two years. Gross savings of these companies have been assumed to grow annually at 20 per cent and 25 per cent for GDP growth of 7-8 per cent and 8.5-9.0 per cent, respectively, during the 11^th Plan period. Corresponding growth rates in depreciation have been assumed at 5 per cent and 6 per cent, respectively, for the above two growth rate ranges of GDP.

In respect of non-financial companies, following ratio approach and trends observed in sales and certain ratios, like profit before tax (PBT) to sales, tax provision to PBT, etc., in the recent past formed the guiding factors in assuming the ratios for the private non-financial companies for the 11^th FYP period. As stated earlier, a few of the factors such as expectation for a better performance, further rationalization of corporate tax rates, business cycles have also been considered in projecting various variables of these companies.

Initially, sales of these companies have been projected based on a regression model with GDP growth and a business cycle dummy as explanatory variables, covering the period 1980-81 to 2004-05. Based on the projected sales, PBT, PAT, dividends and retained profits, have been estimated assuming PBT – sales ratio at 10 per cent, tax provision to PBT ratio at 28 per cent and dividend-payout ratio at 35 per cent for the Eleventh Plan period. The non-operating surplus has been assumed to form 0.5 per cent of sales and the depreciation sales at 5.0 per cent through out the Plan period.

Gross savings of the private corporate sector as a percentage to GDP at current market prices have been projected at 5.56 per cent, 5.56 per cent, 5.67 per cent and 5.68 per cent under the four alternatives of GDP growth rates ( 7 to 9 per cent), for the Eleventh FYP period.

The public sector comprises the central government, state governments, central public sector undertaking (CPSUs) and state level public enterprises (SLPEs). Public sector savings has been estimated under the four alternative growth rates of GDP and under the implications of FRBM legislation both at central and state levels putting limit on the borrowing of centre and states. The sub-group has adopted FRBM Act with four variants, viz.,

(i) FRBM target (of Revenue Deficit and gross fiscal deficit) to be realised by 2008-09 and the revenue-capital mix of the Plan expenditure is fixed; (ii) FRBM target to be realized by 2008-09 and the revenue-capital mix of the Plan expenditure is allowed to change on a year to year basis, and (iii) and (iv) target year to realise FRBM act by 2010-11 under the above two variants of the revenue-capital mix of Plan expenditure.

Projection of central government finances for 11^th FYP has been based on its budget estimate of 2006-07. Projection has been made separately for revenue receipts, non-debt capital receipts, and non-plan expenditure. For estimation of savings, the public sector, it is divided into: (i) government administration, (ii) departmental enterprises, and (iii) non-departmental enterprises. The savings of the central government, is basically based on its Economic and Functional Classification, which also gives net profits of and depreciation provision of DCUs. The report presents certain relationships between budget classification (revenue deficit) and the economic and functional classification for purpose of projections, which have been used in working out projection of central/state governments’ savings.

The trends in saving of the public sector indicated that savings have been negative since 1997-98 which turned positive from the year 2003-04 (Table 6). This has been essentially the result of a drop in the revenue deficits of the central and state governments.

Table 6: Public Sector Saving Rates
(Per cent of GDP)
	Public Sector	*of which:* Public Authorities	Government Administration	Departmental Enterprises	Non-departmental Enterprises
1	2 =(3+6)	3 =(4+5)	4	5	6
1997-98	1.3	–2.1	–2.8	0.7	3.4
1998-99	–1.0	–4.5	–5.1	0.6	3.5
1999-2000	–0.9	–3.8	–5.0	1.2	3.0
2000-2001	–1.8	–4.7	–5.5	0.8	2.9
2001-02	–2.0	–5.5	–6.0	0.6	3.5
Average	–0.9	–4.1	–4.9	0.8	3.3
2002-03	–0.7	–4.7	–5.2	0.5	4.0
2003-04	1.0	–3.1	–3.7	0.5	4.2
2004-05	2.2	–2.2	–2.7	0.5	4.4
2005-06	3.2	–1.2	–1.7	0.4	4.4
2006-07	3.9	–0.5	–1.0	0.3	4.4
Average	1.9	–2.3	–2.9	0.5	4.3

The projections of public sector savings for the 11^th FYP period have been worked out based as the following assumptions besides the four alternatives of GDP: (i) the centre and states would adhere to the targets set under respective fiscal responsibility legislations, (ii) considering basic difference in budget estimate of revenue deficit and economic and functional classification of governments, it is assumed that the difference between the two would be of the order of 0.2 per cent of GDP, (iii) the saving of DCUs would decline to 0.3 per cent of GDP in the 11^th FYP as BSNL has become NDPEs and (iv) there will not be any investment in new public sector projects during the 11^th Plan period and the existing public enterprises would maintain the projected savings.

Based on the above assumptions, public sector savings has been estimated at 3.7 per cent, 4.1 per cent, 4.2 per cent and 4.6 per cent, of GDPCMP respectively, under the four alternatives of GDP growth rates (from 7.0 per cent to 9 per cent). Projected savings for the constituents of public sector are given in Table 7.

Table 7: Projections of Public Sector Savings for 11th Plan: Alternate Scenarios
Year	Government Administration	Departmental Enterprises	Non-departmental Enterprises	Public Sector
1	2	3	4	5=(2+3+4)
Scenario 1 : Growth Rate 7.0 per cent
2007-08	–0.9	0.3	3.3	2.7
2008-09	0.2	0.3	3.3	3.8
2009-10	0.2	0.3	3.4	3.9
2010-11	0.2	0.3	3.6	4.1
2011-12	0.2	0.3	3.6	4.1
Average	0.0	0.3	3.4	3.7
Scenario 2 : Growth Rate 8.0 per cent
2007-08	–0.9	0.3	3.8	3.2
2008-09	0.2	0.3	3.8	4.3
2009-10	0.2	0.3	3.8	4.3
2010-11	0.2	0.3	3.8	4.3
2011-12	0.2	0.3	3.8	4.3
Average	0.0	0.3	3.8	4.1
Scenario 3: Growth Rate 8.5 per cent
2007-08	–0.9	0.3	3.9	3.3
2008-09	0.2	0.3	3.9	4.4
2009-10	0.2	0.3	3.9	4.4
2010-11	0.2	0.3	3.9	4.4
2011-12	0.2	0.3	3.9	4.4
Average	0.0	0.3	3.9	4.2
Scenario 4 : Growth Rate 9.0 per cent
2007-08	–0.9	0.3	4.3	3.7
2008-09	0.2	0.3	4.3	4.8
2009-10	0.2	0.3	4.3	4.8
2010-11	0.2	0.3	4.3	4.8
2011-12	0.2	0.3	4.3	4.8
Average	0.0	0.3	4.3	4.6

As per the terms of reference of the sub-group, the draft of public sector on private savings has also been estimated for the 11^th Plan period. For this purpose, it is assumed that (i) centre and states would adhere to the FRBM regulations, (ii) extra budgetary resources of DCUs and NDPEs are assumed to remain around 2 per cent of GDP based on trend analysis and (iii) disinvestments by central and state governments is assumed to be nil.

The draft of public sector on private savings formed 10.1 per cent in the 10^th Plan, a decline from 11.4 per cent in 9^th Plan. It has been projected that it could further decline to 7.76 per cent in the 11^th Plan period. The implementation of the sixth pay commission’s recommendations may affect the savings of the public sector if the revenue buoyancy does not offset the incremental effect in expenditure.

Estimates of foreign savings [or current account deficit (CAD)] have been obtained based on a model in an open macro-economic framework. The model approach is briefly given below:

condition (or world GDP), and domestic export prices (i.e., export prices deflated by nominal exchange rate).

(x) Invisibles (net) = Net private transfers + (Service receipts – Service payments) + (Investment income receipts – Investment income payments)

Based on the above model, the current account balance has been projected to be -1.4 per cent, -2.5 per cent, -2.4 per cent and –2.8 per cent of the GDPCMP under the four scenarios of GDP growth rate. Alternatively, it has projected the net capital flows, as a mirror of external resource balance by estimating the major components of capital flows, e.g. foreign direct investment, external commercial borrowing and NRI Deposits. Under the approach, the net capital flows have been estimated around 3.1-3.5 per cent of GDP under different scenarios. They also estimated ‘stable flows’ (defined as all capital flows excluding portfolio flows and short-term credit) to be around 2.4 to 2.7 per cent. From the angle of financing CAD, the report states, higher GDP would simultaneously entail the need to encourage relatively longer-term capital flows.

The sub-group has projected the ground level credit (GLC) requirement by the Agriculture during the Eleventh FYP period to attain the targeted Plan growth of 8.5 per cent which warrant a growth of at least 3.9 per cent in agriculture sector. It has assumed the ICOR at 3.95 for the 11^th FYP and agriculture to grow by 3.9 per cent. They have adopted four approaches to project the GLC for the Plan period, viz., based on (i) various GDP growth rate (credit based on Term structure), (ii) capacity of the credit institutions (credit supply constraint approach), (iii) Trend rate growth, and (iv) trend in ratio of GLC to GDP in agriculture.

Total GLC to agriculture sector has been projected at Rs 16,40,000 crore for the 11^th Plan, indicating an annual compounded growth of 17 per cent as compared to Rs 639,330 crore of expected GLC during the 10^th Plan period.

The special thrust for the SME sector has been consistent with multiple objectives of employment generation, regional dispersal of industries and as a seedbed for entrepreneurship. The requirement of funds by SMEs is of two types., viz., long-term capital and working capital. The long-term capital has been projected based on regression analysis and also on institutional capacity. The working capital funds have been projected following two approaches, viz., (a) regression between working capital and production under the assumptions of: (i) GDP of 8 per cent and SSI growth of 11 per cent, (ii) GDP of 8.5 per cent and SSI of 12 per cent and (iii) GDP of 9 per cent and SSI of 13 per cent; and (b) assumption of doubling of the credit with a minimum 20 per cent annual growth.

The working capital requirement from scheduled commercial banks has been estimated at Rs 67,989 crore for the 11^th FYP leading to 10.8 per cent per annum growth. On the other hand, the long-term capital is estimated Rs 1,48,720 crore at a growth rate of 24.1 per cent per annum.

The projected sectoral savings and aggregate savings for the eleventh FYP period, under four alternative scenarios are presented in Statements 1 and 2. Overall GDS has been projected in the range of 33.4 to 34.7 per cent under the alternative scenarios, indicating a buoyant domestic resource base for the saving. CAD has been projected in the range of 1.4 to 2.8 per cent for the Plan period, leading to investment rate in the range of 34.8 to 37.5 per cent. Table 8 presents these projections.

Among the assumptions, while estimating the likely funds flow to Agriculture Sector during the Eleventh FYP, an ICOR of 3.95 has been assumed. The assumed ICOR appear to be on high side as observed from the current trends. Secondly, the saving of the private corporate sector has already reached 8.1 per cent of GDPCMP in 2005-06 and the Plan estimate of 5.6 to 5.7 per cent seem to be on lower side. Perhaps, the trends of the private corporate sector for 2004-05 and 2005-06 have not become available at the time of estimating the Plan estimates.

Thirdly, the savings of the households sector gets affected whenever the estimates of capital formation of private corporate sector have large fluctuations as the estimates of households’ capital formation are derived as residual and the same are included under households savings (as physical savings). It is not clear how the estimates of savings of unincorporated units have been shown in Table 7, which are nowhere available. It would not be proper if entire households savings are shown here!

Lastly, the overall savings projected at 31.4 to 32.6 per cent for the initial year (i.e. 2007-08) of the Plan is much lower as the year, 2005-06 has already achieved this saving rate (as seen from Table 2). The average saving rate for the 11^th Plan period has been worked out to be 33.4 to 34.7 per cent under the four scenarios, as against the present saving rate of 32.4 per cent. Thus the projected savings rate appears to be a somewhat of an underestimation. However, the projected domestic savings by the Working Group, for the Plan period are higher than those given in the Approach Paper.

Statement 1: Projection of Savings for the 11th Plan Period in the Four Growth Scenarios: Timeline
(Per cent)
Item		2007-08	2008-09	2009-10	2010-11	2011-12	Avg. (2007-12)
Scenario I: 7.0 per cent GDP Growth
I.	Household Saving (a+b)	23.1	23.6	24.1	24.6	25.2	24.1
	a) Physical Saving	12.4	12.6	12.8	13.1	13.3	12.9
	b) Financial Saving (Net)	10.7	11.0	11.2	11.6	11.9	11.3
II.	Private Corporate Saving	5.6	5.5	5.4	5.6	5.8	5.6
III.	Public Saving	2.7	3.8	3.9	4.1	4.1	3.7
IV.	Current Account Deficit (-)	1.6	1.5	1.4	1.3	1.1	1.4
V.	Gross Domestic Saving (I+II+III)	31.4	32.9	33.4	34.3	35.1	33.4
Scenario II: 8.0 per cent GDP Growth
I.	Household Saving (a+b)	23.1	23.7	24.2	24.8	25.5	24.3
	a) Physical Saving	12.4	12.7	12.9	13.2	13.4	12.9
	b) Financial Saving (Net)	10.7	11.0	11.3	11.7	12.0	11.4
II.	Private Corporate Saving	5.6	5.5	5.4	5.6	5.8	5.6
III.	Public Saving	3.2	4.3	4.3	4.3	4.3	4.1
IV.	Current Account Deficit (-)	1.9	2.0	2.1	2.2	2.4	2.1
V.	Gross Domestic Saving (I+II+III)	31.9	33.5	33.9	34.7	35.6	34.0
Scenario III: 8.5 per cent GDP Growth
I.	Household Saving (a+b)	23.2	23.8	24.3	24.9	25.6	24.3
	a) Physical Saving	12.4	12.7	12.9	13.2	13.5	12.9
	b) Financial Saving (Net)	10.7	11.1	11.4	11.7	12.1	11.4
II.	Private Corporate Saving	5.7	5.5	5.5	5.7	6.0	5.7
III.	Public Saving	3.3	4.4	4.4	4.4	4.4	4.2
IV.	Current Account Deficit (-)	1.9	2.2	2.4	2.7	2.9	2.4
V.	Gross Domestic Saving (I+II+III)	32.2	33.7	34.2	35.0	36.0	34.2
Scenario IV : 9.0 per cent GDP Growth
I.	Household Saving (a+b)	23.2	23.8	24.4	25.0	25.7	24.4
	a) Physical Saving	12.5	12.7	13.0	13.2	13.5	13.0
	b) Financial Saving (Net)	10.7	11.1	11.4	11.8	12.2	11.4
II.	Private Corporate Saving	5.7	5.5	5.5	5.7	6.0	5.7
III.	Public Saving	3.7	4.8	4.8	4.8	4.8	4.6
IV.	Current Account Deficit (-)	2.3	2.7	2.8	2.9	3.0	2.8
V. Gross Domestic Saving (I+II+III)		32.6	34.1	34.7	35.5	36.5	34.7

Statement 2: Projection of Gross Domestic Saving - Sectoral and Overall Saving for Eleventh Five Year Plan (2007-08 to 2011-12)
(Per cent)
Item		2004-05*	Real Gross Domestic Product Growth
Item			Scenario 1 at 7.0 per cent	Scenario 2 at 8.0 per cent	Scenario 3 at 8.5 per cent	Scenario 4 at 9.0 per cent
I.	Domestic Private Saving	26.8	29.7	29.9	30.0		30.1
	(a) Household Saving	22.0	24.1	24.3	24.3		24.4
	(i) Physical Saving	11.7	12.9	12.9	12.9		13.0
	(ii) Financial Saving	10.3	11.3	11.4	11.4		11.4
	(b) Corporate Saving	4.8	5.6	5.6	5.7		5.7
II.	Public Sector Saving	2.2	3.7	4.1	4.2		4.6
III.	Gross Domestic Saving (I+II )	29.1	33.4	34.0	34.2		34.7
IV.	Current Account Deficit (-)	1.0	1.4	2.1	2.4		2.8
V.	Gross Domestic Capital Formation	30.1	34.8	36.1	36.6		37.5
Memo items:
I.	Eleventh Plan Approach Paper Projection
	(Rates of Gross Domestic Saving)		27.1	29.6	31.0		32.3
	(i) Household		20.1	20.5	20.7		21.0
	(ii) Corporate		5.0	5.5	5.8		6.1
	(iii)PSEs		3.1	3.1	3.0		2.8
	(iv) Government		-1.1	0.5	1.5		2.4
II.	(i) Agriculture Sector		Estimated Ground Level Credit (disbursements) for the agricultural sector is Rs.16,40,000 crore during the Eleventh Five Year Plan. (Average growth rate of17.0 per cent per annum).
	(ii) Small and Medium Enterprises Sector		Estimated incremental working capital flows during the Eleventh Plan period are Rs.1,67,989 crore. (Average growth rate of 16.8 per cent per annum).
			Estimated incremental term loan flows are Rs.1,48,720 crore for the Eleventh Plan period. (Average growth rate of 24.1per cent per annum).
* : Quick Estimates.

1. To estimate domestic private savings, physical and financial and their components in light of the policy and structural changes in the financial sector;

2. To estimate the flow of foreign savings through foreign direct investment, portfolio investment, suppliers’ credit, ECB and in terms of its categories (debt/equity) and its tenure;

4. To estimate the public sector draft on private savings keeping in view the fiscal sustainability and commitments under the Fiscal Responsibility Act; and

5. To estimate resources available for private investment and the likely flows for SMA and Agriculture.

Note: a. For Malaysia, saving rate refers to gross national savings as percentage of GNP.

(b) For Thailand and Pakistan , saving rate refers to gross national savings as percentage of GNP. (c) For Thailand , breakup pertain to net national savings and will not add up to the totals. (d) For Bangladesh , India , Sri Lanka , saving rate refers to GDS as percentage of GDP.

Note: The Investment rate for Bhutan , China , Hong Kong , Maldives and Singapore pertains to gross capital formation.

1 The methodology for compilation of these estimates has been described in the CSO’s publication “National Accounts Statistics: Sources and Methods, 2007 (also 1989)”.

2 The four alternative scenarios based on GDP growth rates are: Scenario 1: 7.0 per cent, Scenario 2: 8.0 per cent, Scenario 3: 8.5 per cent; Scenario 4: 9 per cent.

The central government has planned to pay an incentive bonus of Rs 40 per quintal each, for the current year’s paddy crop, over and above the earlier announced minimum support price (MSP) of Rs 645 per quintal for ‘common’ paddy and Rs 675 per quintal for ‘Grade A’ varieties. This would intensify the concern regarding widening of the gap between the procurement prices of wheat and rice. The difference between the procurement price of wheat and that for ‘Grade A’ paddy was only Rs 50 per quintal in 2005-06, which increased to Rs 200 per quintal in 2006-07. With the recommendation of Commission for Agricultural Costs and Prices (CACP) to set the MSP for wheat at Rs 1000 par quintal for the rabi marketing season 2008-09, this gap would further widen to Rs 325 par quintal

The state of Andhra Pradesh has slid up to the third position in foodgrain production, after producing 169.50 lakh tonnes in 2005-06 following to Uttar Pradesh and Punjab . The state has moved up from the sixth position in 2002-03 by producing 106.55 lakh tonnes to the fourth place in 2003-04 as it had produced 137-lakh tonnes, it retained its position even in 2004-05 with a total production of 134 lakh tonnes.

Food Corporation of India (FCI) has procured wheat from northern parts of India , while private corporate’s have obtained it mainly from central part of India . Out of 111.04-lakh tonnes of wheat procured in the current season, FCI and state agencies have purchased wheat mainly from just 4 states, Punjab (67.57 lakh tonnes), Haryana (33.46 lakh tonnes), Uttar Pradesh (5.49 lakh tonnes) and Rajasthan (3.84 lakh tonnes), while private corporate’ s have sourced it from states like Madhya Pradesh, Bihar, Uttarakhand and Delhi that have yielded a scanty production of 57,000 tonnes, 8,000 tonnes, 2,000 tonnes and 1,000 tonnes, respectively.

According to Food and Agricultural Organisation (FAO), India has lifted its ban on export of skimmed milk powder (SMP) on September 30, 2007 and has entered into the world market, owing to which it is expected that prices of skimmed milk powder (SMP) would get stabilize. Prices of SMP in the international market have been rising significantly due to 25 per cent increase in demand from China . It has been projected that global SMP exports for 2007 would be around 11.44 lakh tonnes, out of which, India is expected to capture at least 10 per cent by exporting nearly 1 lakh tonnes during the entire year, while New Zealand would account 3.4 lakh tonnes, US for 2.97 lakh tonnes, Australia for 1.65 lakh tonnes and the 25-member European Union (EU) would export 70,000 tonnes, respectively.

Planning commission has received a proposal for 11^th five year plan, from sub committee members headed by representatives of National Center of Organic Farming (NCOF), Agricultural and Processed Food Products Export Development Authority (APEDA) and International Competence Center for Organic Agriculture (ICOA), under which they have planned a scheme for boosting up organic farming in the country, specially in states like Maharashtra, Madhya Pradesh, Uttar Pradesh, Gujarat, Himachal Pradesh, Karnataka and Andhra Pradesh, and have demanded fund of Rs 2,500 crore. This recommendation has been suggested taking into account that area under organic farming has increased from 0.76 lakh hectares in 2003 to 5.28 lakh hectares in 2006-07.Similarly, domestic trade in organic farming production has touched to Rs 562 crore in 2005 and estimated to cross Rs 1452 crore in 2006-07. Once this scheme gets approval form the centre, then organic market is likely to grow at 30-40 per cent annually.

According to Agricultural and Processed Food Products Export Development Authority (APEDA) Russian government has lifted its restrictions imposed on Indian exports of sesame seeds and groundnut for 4 months from October 2007, following the country’s assurances on quality.

The central government has asked all state governments to remove obstacles and avoid imposition of sales tax on the movement of ethanol, so that there would be continuous demand for the ethanol in the country, which would automatically reduce cyclical problem relating to sugarcane and host all of its allied activities.

The Tamil Nadu government has asked an assistance of Rs 1,000 crore from centre under the Sugar Development Fund for expanding and modernising the cooperative and public sector sugar mills, so that sugar factories would chalk out an appropriate strategy to encourage sugar mills to undertake modernization, rehabilitation and expansion of capacities for improving viability and competitiveness in the sugar industry.

In the state of Andhra Pradesh, most of the farmers have cut down the area of sugarcane production from 2.60 lakh hectares in 2006-07 to 2.10 lakh hectares this year, due to bitter experience faced by them last year when nearly 1000 of tonnes of sugarcane were left uncrushed and sugar prices had fell down to Rs 15 per kg.

According to Spices Board, exports of spices during April-August 2007, is projected to be 1.87 lakh tonnes valued at Rs 1,725.09 crore (US $ 421.16 million) as against that of 1.49 lakh tonnes valued at Rs 1,290.05 crore (US $ 280.71 million) in the corresponding period of last year. Total exports of spices have increased by 26 per cent in terms of quantity, 34 per cent in rupee value and 50 per cent in dollar terms, as compared to last year. Exports of pepper, cardamom (large), chilli, coriander, fennel, fenugreek, curry powder, spice oils and oleoresins, mint products, and other spices such as tamarind, asafoetida have been higher in terms of both quantity and value as compared to same period a year ago, while export of cardamom (small), nutmeg and mace have witnessed increase in terms of value only. On the other hand, exports of cumin, celery, garlic, vanilla and other seeds have declined both in terms of quantity and value as compared to last year.

As per the notification given by Director General of Foreign Trade (DGFT) on October 4, 2007; reveals that exports of all varieties of onion including new arrivals coming from small regions have been restricted temporarily because of rising prices in domestic market and this would uphold untill prices would not get stabalise.

Total production of mentha oil in the country is expected to shoot out around 30,000 tonnes in 2007-08, because of which exports of mentha oil and its products are set to increase by 30 per cent. It is expected to reach beyond 18,000 tonnes this year as against that of 14,000 tonnes a year ago.

The International Pepper Community (IPC) has projected price index for black and white pepper, which has declined sharply in August 2007 after increasing radically during the period of 2006. The price index for black pepper has declined from 19.52 points to 227.32 in August 2007, while white pepper has dropped by 9.35 points to 208.87. It is presumed that speculation and rumours in the market might have pulled down pepper prices drastically.

Coir industry is hoping to achieve target of Rs 750 crore during 2007-08, out of which Rs 400 crore is expected to come from coir mats and matting alone. It is estimated that coir exports would touch revenue of US $165 million in 2007-08 as against that of US $136 million in 2006-07. It is expected that if the momentum of coir export continues it can easily touch Rs 1,000 crore in the short term. It is only the sector where rupee appreciation has not made any impact on exports. Therefore to provide a major exposure to the coir industry in the international market, Coir Board would be organising ‘India International Coir Fair-2007’ from December 7-11, 2007 at Kochi, for this provision central government has sanctioned Rs 50 lakh and has insisted to display nearly 100 stalls for promoting coir products.

The South India Cotton Association (SICA) has launched its website ‘www.sicacoimbatore.com’ on September 31, 2007. It is recommended that website would contain all the information regarding service pages of the association, daily rate quotes, newsletter and trade information, except some of the downloads which would be restricted only to members of the association.

As per Gujarat Ginners Association one of the cotton ginning and pressing factories has decided to add separately pressing and packaging charges of Rs 40 per bale in their invoices for cotton purchases; this decision have demoralized most of the southern cotton mills.

According to the data compiled by Economics and Statistics Department, contribution of Kerala state in the country’s total coconut production has come down to 45 per cent, which was higher at 75 per cent during 1990’s. Even though, production has reduced rapidly the area under coconut cultivation has went up from 7.05 lakh hectares to 9 lakh hectares by 2004-05, representing an increase of 28 per cent, while productivity of coconut has also increased from 5,638 nuts to 6,673 nuts over the period. It is expected that decline in Kerala’s share in total coconut production is due to large-scale coconut cultivation taken up in the states of Tamil Nadu, Karnataka and Andhra Pradesh where the productivity has also been higher than that of Kerala.

A.P. Markfed (Andhra Pradesh State Co-operative Marketing Federation Ltd) has tried to assure farmers about the better price for maize produce by taking care of their market needs, so they have opened nearly 365 procurement centers in the 10 maize growing districts of Andhra Pradesh, including 8 in the Telangana region during sowing period of this year, as maize was sown in 5.60 lakh hectares in 2007 as against that of 5.03 lakh hectares last year.

The state government of Kerala has sanctioned a special package of Rs 1,840 crore to heave a sigh of relief from agrarian crisis in Kuttanadu region, from which. Rs 50 crore would be released immediately and the remaining amount will be disbursed over the next three years. It has also been decided that the region would get a fair deal of assistance from Rashtriya Krishi Vikas Yojana.

ICICI Lombard General Insurance Company (ILGIC) and National Bank for Agriculture and Rural Development (Nabard) have tied up collaboration to formulate a scheme on the liability product targeting for the debt-hit farmers in the state of Maharashtra and Andhra Pradesh, so that they would alleviate their debt burden. It is intended to be launch by the next kharif season (April - October) 2008.

Canara Bank has formulated new scheme “Krishi Mitra Card” for landless individual farmers and tenant farmers to meet their requirements and to provide the beneficiaries for cultivation, repair and maintenance of farm equipment.

Infrastructure

The cumulative index of 6 core industries having a weight of 26.7 per cent in the Index of Industrial Production (1993-94 = 100) registered a better annual growth of 9.0 per cent in August 2007 as compared to a lower growth of 6.6 per cent in August 2006 mainly because of substantial increase in the production of coal.

However, during the first five month of the current fiscal year the growth rate at 6.4 per cent was less than that of 8.3 per cent recorded during the comparable period of last fiscal 2006-07.

Crude petroleum production registered a growth of 1.0 per cent as compared to 3.1 per cent

Refinery products grew by 10.4 per cent during April-August 2007 as compared to 12.2 per cent during the same period last year.

Though coal production during August 2007 recorded almost 100 per cent growth as compared to August 2006, the rate of fiscal year so far growth was only 1.3 per cent as compared to 6.6 per cent last year.

Generation of electricity registered a faster growth of 8.2 per cent during the review period as against a growth of 5.8 per cent last year.

Cement production grew by 8.9 per cent during April-August 2007-08 compred to an increase of 9.5 per cent during the same period of 2006-07.

Finished carbon steel production rose by 5.9 per cent during the review period as against a larger growth of 12.5 per cent last year.

Inflation

The annual point-to-point inflation rate based on wholesale price index (WPI) declined to 3.42 percent for the week ended September 22,2007. During the comparable week of the earlier year, it was 5.43 per cent.

During the week under review, the WPI rose by 0.3 per cent to 215.0 from 214.4 at 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 226.2 from its previous week’s level of 226.4, mainly due to lower prices of urad, gram and condiments and spices.

The index of ‘fuel, power, light and lubricants’ group (weight 14.23 per cent) remained stationary at 322.0.

The index of ‘manufactured products’ group (weight 63.75 per cent) rose by 0.5 per cent to 187.2 from 186.2 for the previous week Food products group rose by 1.o per cent to 189.2 from 187.4 for the previous week due to higher prices of oilcakes and salt, gingely oil, rice bran oil and imported edible oil.

The latest final index of WPI for the week ended July 28, 2007 has undergone upward revision; as a result, both the absolute index and the implied inflation rate stood at 213.9 and 4.70 per cent as against the provisional data of 213.4 and 4.45 per cent.

The public sector banks are on a hiring spree, with four banks planning to recruit close to 5,000 employees over the next few months. While India ’s biggest lender, the State Bank of India (SBI) is looking to hire over 2,700 employees for its various associate banks, other state-run banking institutions like the Union Bank of India , Bank of Baroda (BoB) and Andhra Bank have also lined up plans to expand their workforce by about 2,000 at various junior and middle management levels. Andhra Bank is targeting to fill 734 positions and the BoB and Union Bank of India are set to hire 400 employees each.

Axis Bank has reduced floating interest rates on home loans by 50 basis points for existing as well as new customers since October 1, 2007. The rate has been brought down to 10.5 per cent for both categories.

Direct tax collections of the government have maintained a growth of over 40 per cent for the first six months period of fiscal year 2007-08 to stand at Rs 1,11,055 crore, up from Rs 79,208 crore during the corresponding period of the previous year. According to official data released by the government, small towns have registered higher growth in tax collections compared to the big cities. Growth in overall tax collections, including corporate and personal income tax, in small cities has been significant. Patna has recorded the highest growth at 96.5 per cent amounting to Rs 1,010 crore. Direct tax collections in Mumbai have increased by 73.6 per cent totalling Rs 42,973 crore till September 30 thus it has stood among the top five cities in direct tax collection growth. Lucknow has witnessed a growth of 54 per cent in direct tax collections to stand at the third position. Meanwhile, tax collections in Chandigarh have increased by 47.5 per cent to Rs 3,439 crore, followed by Pune, which has recorded a growth of 45.5 per cent to total Rs 4.552 crore in direct tax collection. Corporate tax collections have gone up by 41 per cent to touch Rs 72,240 crore till September 30, 2007, up from Rs 49,813 crore in the corresponding period of the previous year. Bihar and Jharkhand have witnessed the highest growth in corporate tax collections at a whopping 265 per cent to stand at Rs 451 crore as compared to only Rs 123 crore till September last year. On the other hand, corporate tax collections have fallen by 34 per cent in Vidarbha region. Personal income tax, including fringe benefit tax (FBT), securities transactions tax (STT) and banking cash transaction tax (BCTT), has augmented by 39 per cent at Rs 40,744 crore from Rs 29,329 crore in the corresponding period last year. STT has grown by 48 per cent, BCTT by 17 per cent while FBT witnessed a growth of 103 per cent. Vidarbha has recorded the highest growth in personal income tax collections at 83 per cent, while it has been the lowest in the north-eastern region at 17 per cent. Mumbai region has recorded a growth of 40 per cent in personal income tax and the Delhi region has witnessed a growth of 29 per cent in personal income tax.

Financial Sector

Reliance Power Ltd proposes to sell 130 crore shares with a face value of Rs 2 each in its initial public offering. The company, a subsidiary of Reliance Energy, filed its Draft Red Herring Prospectus (DRHP) with Sebi on October 3,2007. The issue will constitute 11.5 per cent of the company’s equity capital. It includes a promoters’ contribution of 16 crore equity shares which would be allotted at the IPO price.

TCG Life sciences Ltd, a scientific research services and informatics organisation proposes to enter the capital markets with an initial public offering and has filed the DRHP with the Sebi. The company plans to issue 95 lakh equity shares of Rs 10 per share at a price to be decided through 100 per cent ‘book-building’ process. The issue comprises a fresh issue of 90 lakh equity shares to the public and a reservation of up to 5 lakh equity shares for eligible employees.

Bangalore-based real estate Company Brigade Enterprises Ltd plans to raise about Rs 450 crore in the capital market to fund expansion. The initial public offering is slated for end October or early November.

Supreme Infrastructure India Ltd, an infrastructure development company, has fixed its issue price at Rs 108 per equity share, after the successful completion of the 100 per cent book building process. The IPO was closed for subscription on September 26. As per the preliminary bidding data on the BSE, the issue was subscribed by 52.53 times. The qualified institutional buyers (QIBs) subscribed 52.1 times, non-institutional investors subscribed around 65.42 times and retail-individual investors subscribed 48.22 times. The equity shares are to be listed on the BSE and NSE.

Tata Technologies, the specialist engineering and design company of the Tata Group, will make an initial public offering next year to repay debts and fund expansion. INCAT Ltd, the UK-based Tata Technologies Company, said that the company had lined up major expansion plans towards increasing revenues from the current $220 million to $500 million by 2010.

IRB Infrastructure Developers Ltd, an integrated infrastructure development and construction company, filed its Red Herring Prospectus with the Sebi for an Initial Public Offer of 5,10,57,666 equity shares of Rs 10 per share through a 100 per cent book-building process.

The National Stock Exchange (NSE) launched a new index for the mid-cap stocks named as Nifty Mid- cap on October 05, 2007. It comprises 50 stocks from the mid-cap segment with an average market capitalization of Rs 1000 crore to 5000 crore. The index has a base date of January 1, 2004 and a base value of 1000 points. Its primary objective is to capture the movement of the mid-cap segment and can also be used for index-based derivatives trading.

With no consensus emerging on regulation of all financial and investment advisors by a single regulator, Sebi may soon start regulating investment advisors and mutual fund distributors in the securities market through a private sector self-financing regulatory organisation (SRO). The government and the Sebi had agreed that the market regulator would start the process after its next meeting slated on October 25.

After an eleven session long streak of bullishness, the BSE Sensex just defied gravity, ending this week with a moderate 2.8 per cent gain at 17773.4 points. The Nifty gained 3.3 per cent closing at 5185.85 points. Mid-cap and small-cap indices were under fire, grappling to hold ground. Energy and power utility stocks gained significantly during the week, and IT stocks inched ahead on expectations of strong Q2 results. This rally has been tremendously driven by overseas fund flows.

Among the sectoral indices of BSE, BSE–Cap Goods recorded the highest gains of 7.24 per cent as expansion plans and orders for L&T and Bhel pushed up the index. Oil and gas index too recorded 5.73 per cent gain over a week. Banking Index was the biggest loser on reports of a CRR hike.

The Reserve Bank of India (RBI) has proposed a range of measures including sectoral ceilings and lock-in for investments by foreign private equity (PE) funds. The central bank is concerned at the large foreign exchange inflows through the PE route. Among its suggestions to the finance ministry, RBI has also said the government should classify private equity under a separate category of foreign investment, or create sub-limits within foreign direct investment (FDI) or investments by foreign institutional investors (FIIs). Foreign private equity is currently counted under FDI.

Domestic mutual funds turned net sellers of shares in September as investors rushed to partly redeem their equity fund investments as indices scaled peak levels and also because fund managers preferred to book profit in shares. In September, mutual funds net sold Rs 764 crore of equities compared with their net investments of Rs 4,094 crore in August, according to data released by the Securities and Exchange Board of India.

India has emerged the biggest magnet for foreign institutional investors in Asia, attracting funds worth $4.1 billion more than Taiwan ’s $3 billion since the US Federal Reserves rate cut on September 18, according to the latest figures provided by news agency Bloomberg. The earnings growth is expected to continue, which means valuations are not sounding expensive. Foreign investors are looking for a safe currency, as the dollar is weakening, and are confident about the rupee strength.

Sebi is looking at reducing the fees of all mutual fund schemes equity funds (open- and close-ended), debt funds, index funds and even funds of funds (or FoFs, mutual funds that invest in mutual funds). Industry sources said the market regulator had a round of discussions with the Association of Mutual Funds in India (AMFI) and other market participants on the issue. Another meeting is scheduled next week at which AMFI is expected to make suggestions on new fee structures. A first step in this exercise was Sebi’s proposal in August to scrap the entry-load payment on open-ended schemes that are bought through online applications or directly through asset management company collection canters instead of distributors.

The mutual fund industry has clocked growth of 41.7 per cent in the first nine months of 2007, outperforming the Sensex, which grew by 22.9 per cent during the same period. Riding on the wave of strong inflows into debt schemes, mutual funds now have Rs 4,77,737.61 crore under management from Rs 3,37,089.94 crore in the beginning of this year. However, the growth in September has been marginal, only 2.11 per cent compared with the August’s figure of Rs 467432 crore. This was because MFs booked profit to declare dividends for the half-year ending. The MF industry is now eyeing 15 per cent growth in assets under management (AUM), provided the markets hold ground during the period. Equities are the most preferred asset class, this year there has been a change in this trend with a lot of institutional money flowing into FMPs (fixed maturity plans) and liquid plus schemes. The share of equities in total assets under management has fallen from 35 per cent to 27 per cent since the beginning of this year. Similarly, the contribution of debt has shot up from 26 per cent to 38 per cent, indicating the preference of investors. This year has also witnessed more debt NFOs than equity ones.

The nifty closed at 5186 in spot with October futures settled at 5192.2 and November futures at 5187 and December was settled at 5196.45. Open interests increased substantially across all three contracts as the FIIs were partly responsible since they increase their future exposure. Nifty Junior crossed 10000 before seeing a sell-off that brought the spot down to 9767 while the October future was held at 9800. There is not enough differential in the Nifty November – October series to set up a calendar spread of any description. The Bank Nifty was down 2.4 per cent closing at 7845 in spot while the October series was settled at 7888, the sell off appears to continue into next week.

On October 05, the government raised the limit on the Market Stabilisation Scheme (MSS) to Rs 2,00,000 crore from Rs 1,50,000 crore, easing pressure on the RBI to increase the cash reserve ratio (CRR). The market has been abuzz with speculation over the last couple of days about the RBI considering the CRR hike. This is the fourth time the government has raised the limit. The move gives the RBI additional room to absorb excess liquidity in the system by issuing government bonds.

The Government of India, in consultation with the Reserve Bank, has further revised the ceiling for the out standings under the Market Stabilisation Scheme (MSS) for the year 2007-08 to Rs.2,00,000 crore. The threshold at which the ceiling will be reviewed in future will now be Rs.1,85,000 crore. With the MSS auction of dated security and treasury bills held on October 3, 2007 the MSS outstanding (face value) will be at Rs.1,44,940 crore as on October 5, 2007.

Kerala State Government auctioned 10 year paper maturing in 2017 through an yield based auction using multiple price auction method on October 4, 2007 at cut-off yield of 8.2 per cent with notified amount of Rs 590.23 crore.

Four State Governments (Gujarat, Maharashtra, Rajas than, West Bengal) announced the sale of 10-year paper maturing in 2017 for an aggregate amount of Rs. 4,972 on October through an yield based auction using multiple price auction method.

On October 03, 2007 RBI conducted the auctions of 91 day and 182-day T- bills for the notified amounts of Rs.3,500 crore (out of which Rs.3,000 crore under MSS) and Rs.2,500 crore (out of which Rs.2000 crore under MSS) respectively. The cut-off yields for 91 day T-bills and 182-day T- bills were 7.1443 per cent and 7.3169 per cent respectively.

Through a price-based auction using multiple price method RBI conducted the auctions of 5.87 per cent 2010 and 11.30 per cent 2010 for Rs.4000 and 3000 crore respectively. Both the auctions conducted on October 03, 2007 under the Market Stabilisation Scheme (MSS). The cut-off yields were 7.80 per cent and 7.84 per cent respectively.

Call rates were steady throughout the week and ended at 6.00-6.10 per cent aided by surplus cash. Heavy FII inflows reduced pressure on liquidity front. Surplus cash will support the call rates to remain stable while traders worried about the possibility of CRR hike to drain excess cash.

Bond market activity was relatively subdued in spite of ample liquidity conditions. RBI’s move to raise MSS bond limit from 150,000 crore to 200,000 crore came as a little surprise to the market. Yield on 10-year benchmark 7.99 per cent 2017 was caught in a tight range of 7.88 to 7.90 per cent through the week

Oil market companies are likely to get relief from losses on retail sales, as there is possibility of clearing around Rs 24000 crore worth of oil bonds by Cabinet next week.

Sebi wants to introduce a repo (repurchase) market in corporate bonds. The move follows the willingness of the two leading bourses the BSE and the NSE to have a risk-free clearing system to undertake corporate bond repos. The capital market regulator would soon write to the Reserve Bank of India (RBI) to allow repos in corporate bonds, which were expected to boost the liquidity in the corporate debt market. The RBI, which regulates the money market instruments, had put certain conditions such as sufficient liquidity, risk-free clearing system and so on for allowing repos in corporate bonds. Considering that both the conditions are now available, the Sebi hopes the RBI would give its nod for the introduction of repos in corporate bonds. Repos in corporate bonds will give an opportunity to investors, who have illiquid corporate bonds, to recycle the same and borrow money against these securities.

During the week, Bank of India tapped the market by issuing perpetual bonds by offering 10.40 per cent with a step-up of 50 bps if call is not exercised at the end of 10-years for an amount of Rs 155 crore. The issue has been rated AA + by Crisil and Icra.

Backed by a cross-currency appreciation against the dollar and forex inflows, the spot rupee continued to appreciate against the dollar. It has been reached to a new nine-year high of 39.3650, which was dealt at 39.25 to a dollar. However, there was support through the RBI intervention to protect the spot rupee at 39.49/50 to a dollar, as the government enhanced the MSS ceiling from Rs 1,50,000 crore to Rs 2,00,000 crore.

Multi Commodities Exchange (MCX), India 's largest commodity exchange, which boasts of a trading portfolio of over 60 commodities, had recently got approval for trading in tin expects to get regulatory permission to trade in crude palm oil already applied for a licence to the Forward Markets Commission.

MCX has planned to set up a commodity exchange in Mauritius and have signed an agreement with the stock exchange of Mauritius for setting up a commodity exchange in that country. MCX would hold 50 per cent stake in the commodity exchange while the remaining stake would be held by the stock exchange of Mauritius and some banks as well as financial institutions of Mauritius . The commodity exchange of Mauritius is expected to be functional by the end of 2008.

Black pepper availability in 2008 is likely to be less as the output in India , Brazil and Vietnam is likely to show a decline. In India , harvesting of 2007-08 crop is expected to be delayed because of the incessant heavy rains in the growing areas in September. The output is also projected to be less by 15-20 per cent from that of the previous year due to widespread damages caused by the rains, according to growers. The production in 2006-07 is estimated at around 45,000 tonnes.

The Forward Markets Commission (FMC), the commodity markets regulator, has reduced the penalty levied on delivery defaults by traders to 2.5 per cent with immediate effect from the earlier 8 per cent. The total amount of penalty to be imposed will be equivalent to 2.5 per cent plus the difference between the final settlement price (FSP) and the spot price prevailing on the last day of the pay-in/pay-out of the expired contract, if the said spot price is higher than the FSP. Otherwise this component will be zero. MCX gold has been trading below its all-time highs, and that could be a leading indicator for global gold prices.The visit by a team from European Union (EU) is expected this week, which could prove crucial for the guar seed market in the country. Traders and market analysts believe that the commodity, which is continuously reeling under weak sentiments, will get a positive push once the quality issue is settled with the EU team. Around a month ago, cases of poor quality were reported in guar gum consignments to Europe.Commodity market regulator the Forward Markets Commission has directed all commodity exchanges to remove the special margin of 6 per cent levied on cumin seed (jeera) and pepper contracts from October 02. Following the FMC’s direction, all commodity exchanges, including MCX, NCDEX and NMCE, revised their margins on pepper and cumin seed contracts from the commencement of trade October 02. The latest circular supersedes an earlier directive issued by the FMC in July. In another development, the NMCE announced a reduction in the validity period of warehouse receipts (WRs) of pepper contracts to six months, instead of the current nine months. This will be applicable to all stocks deposited as well as revalidated from October 16, 2007.

Insurance

Private sector life insurance major Bajaj Allianz Life Insurance crossed a major milestone 50 lakh individual policies, since inception in October 2001.

Corporate Sector

Close on heels of DLF and Ansal API, realty major Emaar MGF has also jumped onto the healthcare bandwagon by entering into a memorandum of understanding (MoU) to form a joint venture with Fortis Healthcare to develop hospitals in Tier I and II cities across the country.

Tata Indicom has crossed the 20-million subscriber mark. The company has registered the highest compounded annual growth rate (CAGR) at 112 per cent with a year-on-year increase of 86 per cent in its total subscriber base. According to TRAI report, market share of Tata Indicom has increased from 3.5 per cent in March 2004 to 9.7 per cent in March 2007.

External Sector

Despite appreciation of the rupee vis-À-vis the dollar and its adverse impact on exporters’ margins, the country’s export have maintained a high growth path with the latest data for August 2007 achieving a growth of 18.9 per cent to US $ 12.69 billion and cumulative export growth during April-August 2007 at 18.36 per cent. In rupee terms, exports during August 2007, have amounted to Rs 51,787.31 crore – higher by 4.31 per cent than the value of exports during August 2006.Due to the appreciation of rupee, most of the import-intensive export production such as engineering goods, man-made yarn and fabrics, and gems and jewellery had done well as they were able to import intermediates or raw materials on a higher volume at a relatively cheaper price to process and export abroad. Cumulatively, imports for the period April-August 2007 have stood at US $ 92 billion (Rs 3,76,964.85 crore) against US $ 70.18 billion (Rs 3,22,203.73 crore) showed a growth of 31.07 per cent in dollar terms and 17 per cent in rupee terms during the same period last year. Oil imports during the first five months of the current fiscal have valued at US $ 25.90 billion, 8.32 per cent higher than US $ 23.91 billion in the corresponding months of last year. Cumulatively, non-oil imports during April-August 2007 have valued at US $ 66.09 billion - higher by 42.85 per cent than the level of such imports valued at US $ 46.26 billion in April-August 2006.

The finance ministry, as steps to soften the impact of the rising rupee, has extended the scope of service tax refunds to exporters and permitted them to earn interest on foreign currency account The finance ministry has now made three more services eligible for refund of tax paid by exporters, which include general insurance, technical testing & analysis, and inspection and certification. As part of the relief package, the finance ministry has also expanded the list of sectors eligible for lower lending rates from banks. These now include jute and carpets; processed cashew, coffee and tea, solvent extracted de-oiled cake, plastics and linoleum. It has also raised the revenue ceiling by Rs 300 crore to Rs 500 crore on the Vishesh Krishi Gram Udyog Yojana.

The world’s third-largest mobile operator by subscriber base, AT&T of the US , is all set to re-enter the rapidly growing Indian telecom market, subject to new guidelines being framed by the Department of Telecommunications. The company had applied for a unified access service licence (UASL) for 22 circles across the country. AT&T will be partnering the Mahindra group. AT&T exited the Indian mobile services market in July 2005, when it sold its equity in Idea to the Tata and Aditya Birla groups.

The country’s largest mobile operator, Bharti Airtel become the 10^th largest telecom company in the world with a total subscriber base crossing 50 million, including wireline and broadband users. With this, the company has achieved the distinction of becoming the fastest private telecom company in the world to achieve this landmark in a single country – within 143 months of start of operations. Airtel has added the last 25 million users in just 14 months. The company is now targeting to reach the 100-million mark, which it expects in the next two years considering that it is adding 2 million subscribers every month.

*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.