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Current Economic Statistics and Review For the
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Theme
of the week:
Central Government Budget 2008* In a liberalised environment, fiscal and monetary
policies are the only two major policy instruments that guide the process of
development. During the past two decades, both the policy instruments are
hamstrung by stabilisation goals, thus leaving the objectives to the market
forces. In fiscal policy, in particular, the government of
Unconventional Budget The budget for 2008-09 can be discerned as unconventional
in many aspects. First, it seeks to confer unimaginably large benefits for
the rural as well as urban Thus, the budget very well stands on a populist ground, but not from the macroeconomic point of view. Besides creating a major burden on government expenditure, the waiving off of loans would have a social impact too. It would disturb the whole system of credit institutions as it looses grip on the recovery process – an essential aspect of sustainability of institutions. The earlier budgets also have announced similar kinds of measures just for the sake of satisfying political impulses. The measures like the waiving off of loans make common people happy in the short run but they are of an one-time nature and have no long-term positive impact either on the economy or on the beneficiaries – an impact, which productive investments in particular area would have produced.
Deficit Indicators: During the recent years, a major thrust of the budgets has been the reduction in fiscal and revenue deficits to meet the targets set by the Fiscal Responsibility and Budgetary Management (FRBM) Act, 2003 and the rules framed thereunder. If we consider the deficits (revenue and fiscal) during the recent seven to eight years, both the deficits display a substantial reduction (graph A). Following the recent trend, the revised estimates for the fiscal year 2007-08 as well as the budgeted estimates for 2008-09 have displayed a satisfactory reduction in both deficit indicators. It is significant to note that the fiscal deficit for the year 2007-08 has been revised to constitute 3.1 per cent of GDP, while the revenue deficit constituted 1.4 per cent of GDP - shades lower than these of 3.2 per cent and 1.5 per cent budgeted for the year, respectively. For the year 2008-09, fiscal deficit has been budgeted to decline further and is expected to form 2.5 per cent of total GDP projected for the year 2008-09. According to the budget, the elimination of revenue deficit which is suppose to have been done by the end of 2008-09, has been postponed by one more year because, as claimed in budget, of the conscious shift in expenditure in favour of health, education and the social sectors.
However, the fiscal deficit estimates do not include the impact of implementing the sixth pay commission, which would be submitting its report by March 31, 2008. There have been enough indications that the immediate yearly burden of its recommendations would exceed Rs 30,000 crore on the budget. Though the arrangements is to wipe off the bank balance sheets of Rs 60,314 crore worth loans outstanding, (Rs 5,524 crore for small and marginal farmers, Rs 9,790 crore for the one time settlement of other farmers) the government’s payment for the would be truncated and done in three years – Rs 25,000 crore in 2008-09, Rs 15, 000 in 2009-10 and Rs 12, 000 crore in 2010-11and Rs 8,000 crore in 2011-2012. It does not reflect in full the rising oil prices, the impact of which has not been reflected in the economy yet due to controlled price policy adopted by the government. It would be more important to reduce the percentage of total liabilities of the centre to GDP. It has been budgeted to reduce to 57.75 per cent during the year 2008-09. However, during 2007-08, the percentage of total liabilities of the centre to GDP had been budgeted to decline to 58.4 per cent during 2007-08, which has not been achieved. On the other hand, it has increased to 61.72 per cent of GDP as per the revised estimates for 2007-08 – more than that of 61.23 per cent achieved in 2006-07. Receipts: The
revenue of the government has seen a steady rise over the years. It has gone
up from 58.9 per cent of GDP during 2000-01 to 81.1 per cent during 2008-09
(BE). During the fiscal year 2007-08, the revised revenue receipts have
witnessed an increase of 8 per cent over the budgeted estimates for the same
year or by 20.9 per cent over the actuals of 2006-07. The revenue receipts
have been budgeted to increase further by 14.8 per cent for the fiscal year
2008-09. Both the tax revenue and non-tax revenue have been revised upwards
by 6.9 per cent and 13.1 per cent, respectively, for the year 2007-08 (Table
1).
The tax base has expanded definitely, during the last seven-eight year period as there has been a substantial rise in gross tax to GDP ratio by about 4.8 percentage points from 8.20 per cent in 2001-02 to 12.97 per cent during 2008-09 (BE). The steady rise in the share of direct taxes in the tax structure of the central government has been a feature in the fiscal performance in recent years. The proportion of direct taxes in gross tax revenue has increased from 37 per cent during 2001-02 to 53.0 per cent during 2008-09 (BE); correspondingly the share of indirect taxes has declined from 63.0 per cent to 47 per cent during the same period. Reflecting
the increased buoyancy, during the year 2007-08, the direct tax revenue has
been revised upward by 14 per cent over the budgeted estimate for the fiscal
year, among which income tax has seen a rise of almost 20 per cent. The
income tax revenue has been budgeted to increase by 16.9 per cent during
2008-09 over the year despite the sizeable reductions in rates effected
under income tax in the budget. This buoyancy in direct tax revenues has
taken place mainly because of the considerable increases in incomes of the
middle and richer classes of society in the post-reform period. Also, much
the larger part of the increases in higher incomes has occurred amongst the
executive class who cannot evade taxes; therefore, the average collection
has turned out to be better than that in the past. This increase in income,
in other words, means, a decisive shift in income distribution in favour of
richer segments of society. This budget has increased the threshold limits
of the income slabs by considerable amounts, which leaves more income in the
hands of middle and rich class of the society. This could increase the
consumption of consumer durables resulting in widening the gap between rich
and poor sections of the society. Threshold
limit of income exemption of personal income tax, in the case of all
assesses has been increased to Rs 1,50,000 from Rs 1,10,000. For income in
the range of Rs 1,50,001 to Rs 3,00,000 there would be 10 per cent of tax,
from incomes Rs 3,00,001 to Rs 5,00,000, it is 20 per cent and for the slab
Rs 5,00,001 and above it would be 30 per cent. Earlier 20 per cent tax rate
was applied to the slab of Rs 1,50,000 to Rs 2,00,000 and 30 per cent to the
slab of Rs 2,00,000 and above. In the case of women assessees, the threshold
limit has been increased from Rs 1,45,000 to Rs 1,80,000 and for senior
citizens, it has been raised from Rs 1,95,000 to Rs 2,25,000. Taking
into account the capital receipts, following the FRBM rules, there has been
a reduction in borrowings of the central government as percentage of GDP.
The revised estimates for capital receipts during 2007-08, have displayed a
decline of 5.1 per cent over the budgeted estimate of Rs 1,94,099 crore for
the same year. Moreover, they have been budgeted to decline by 19.7 per cent
during 2008-09 over the revised estimates of 2007-08. The development
process needs a substantial capital expenditure to be used on social and
physical infrastructures, but the FRBM benchmarks have prevented the
government from using borrowings further as instruments of development
finance. Expenditure
On
expenditure side, revenue expenditure has seen an upward revision of 5.5 per
cent during the fiscal year 2007-08 over the budgeted estimates; it has been
budgeted to increase further by 11.8 per cent during 2008-09. The overrun of
the revenue expenditure has arisen mainly under non-plan expenditure
reflecting the increase in the interest payments. For the fiscal year
2008-09, non-plan revenue expenditure has budgeted to increase by mere 1.1
per cent. On the other hand, capital expenditure during 2007-08 has been
revised downward by 1.56 per cent over the budgeted estimates. It has fallen
behind the budgeted estimate mainly due to the fall under defence
expenditure. During 2007-08, there had been a huge growth in non-plan
capital expenditure arising from a special development, viz., the
acquisition of SBI shares from the RBI (for which there is a corresponding
receipt item in the form of other capital receipts). Plan
expenditure for the year 2007-08 has been revised upward by 1.2 per cent
over the budgeted estimates and for the fiscal year 2008-09, it has been
budgeted to increase by 17.3 per cent. The government has budgeted 24 per
cent increase in the budgetary support for the central plan for the fiscal
year 2008-09. Plan revenue expenditure has been budgeted to rise by 19.4 per
cent during the year whereas the plan capital expenditure has been budgeted
to rise only by 5.3 per cent (Table 2).
If the expenditure budget has been observed carefully, it may be seen that the aggregate expenditure as percentage of GDP has fallen from the peak of 17 per cent of GDP in 2002-03 to 14.2 per cent in 2008-09 (BE). This drag has been reflected in slowdown of both plan and non-plan expenditures. The ratio of plan expenditure to GDP has remained around 4 per cent for the last seven to eight years, while the ratio of non-plan expenditure to GDP has fallen from 12.3 per cent in 2002-03 to 9.6 per cent in 2008-09 (BE). The largest decline under non-plan expenditure has occurred under ‘interest payments’ because of a steep and general fall in the interest rate levels in the economy. The share of ‘defence’ expenditure has seen a marginal fall and that of ‘subsidies’ has gone up. The non-plan expenditure earmarked for ‘social’ and ‘economic services’ is still negligible in nature as their ratios to GDP have stayed put around 1.4 to 2.5 per cent over the few years.
Certainly,
under the plan expenditure, the direct expenditures on ‘economic’ and
‘social services’ have witnessed noteworthy increases as proportions of
aggregate expenditure, that is, from 9.8 per cent in 2003-04 to 11.8 per
cent in 2008-09 (BE) and from 5.3 per cent to 12 per cent, during the same
period under consideration (Appendix Table 3). Also, higher allocations have
been made in the Budget for some of the infrastructure sectors though
capital expenditure as a ratio of GDP shows a decline. The energy sector’s
allocation has been budgeted 30 per cent higher than that of revised
estimates of 2007-08. There are substantially higher allocations to the six
components of the Bharat Nirman Programme, which are in the nature of
improving connectivity and rural infrastructure. However, one has to
consider that increase in plan expenditure is mainly for various schemes,
most of which are in the states’ domain. Another point is that the major
chunk of social expenditure has also been borne by the states and the direct
social expenditures incurred by the centre constitute only about 20 per cent
of the aggregate social expenditures of the government sector. Also, the
centre has simultaneously reduced its share of devolution to the states [the
assistance to state plans as percentage of aggregate expenditure has slipped
from 10.3 per cent in 2003-04 to 8 per cent in 2008-09 (BE)]. Expenditure on Social Development
and Poverty Alleviation Programmes
In
the process of development, sectors like education, heath, agriculture and
rural development, need to be given the special attention and accordingly
every budget claims that it has given the due share to these sectors. Every
government announces various programmes and allocates funds to implement
those, but in reality, though the absolute numbers have been increased over
the years, there ratio to GDP has not shown any marked improvement.
Expenditure on education, as percentage of GDP, has risen from 0.35 per cent
in 2001-02 to 0.58 per cent in 2006-07 and further to 0.73 per cent in
2008-09 (BE). The percentage of expenditure on health to GDP has remained
trapped at 0.3 per cent now for about a decade. The proportion of
expenditure on rural development, the proportion had risen merely from 0.6
per cent in 2001-02 to 0.8 per cent during 2008-09 (BE). Overall,
expenditures on all social and poverty alleviation programmes together have
budgeted to be at 2.79 per cent during 2008-09 which will not even reach 3
per cent of GDP (Appendix Table 4). As
a result of the persistent slowness in the central allocations for the
social sectors as well as the reduced levels of fiscal transfers to the
states. The combined expenditures of central and state governments have
remained at 6.27 per cent of GDP – a level attained seven years ago in
2000-01. Despite professed attempts to achieve Millennium Development Goals
(MDGs) the country is nowhere near the 6 per cent and 3 per cent of GDP
targets for education and health, respectively. *
This note has been prepared
by Snehal Nagori
Highlights of Current Economic Scene AGRICULTURE According to Food and Agriculture Organisation (FAO),
The Directorate General of Foreign Trade (DGFT) has
hiked the minimum f.o.b export price of non-basmati rice from US $ 500 to
US $ 650 per tonne and for basmati rice it would be US $ 900 per tonne.
Exports of non-basmati rice would be permitted from the ports like Kandla,
Kakinada, JNPT in Mumbai and Kolkata, depriving exporters access through
other major ports such as Kochi, Vizag, Chennai, Mangalore and Tuticorin,
so that exports of rice can be curbed and domestic supplies would be
ensured.
According to Central Organisation for Oil Industry
and Trade (COOIT) coverage under rabi oilseed has declined by 7.61 per
cent to 8.96 million hectares as on February 22, 2008 However, this would
be due to higher prices of foodgrains luring farmers away from oilseeds in
most of the oil -producing states. Therefore, industry is considering
using genetically modified seeds to maximize output without increasing
area under cultivation; this would reduce dependence on imports. The total
area under mustard and rapeseed, sunflower and safflower has slumped down
drastically, while coverage under groundnut and sesamum have risen
significantly from last year. The demand for edible oil in The Solvent Extractors Association of India (SEAI)
has urged the central government to establish ‘Oilseeds Development
Fund’ to raise production and productivity; to launch weighted income
tax deduction for Oilseed Extension Programme; to declare palm oil as
plantation crop like tea, coffee which would help industrial players to
invest on agricultural land for growing oilseed crop and to amend the
Agricultural Produce Marketing Committee (APMC) Act for the free movement
of agricultural produce. This would help to meet the growing demand for
cooking oils and reduce dependence on imports. According to Solvent Extractors Association of India
(SEAI), According to International Coffee Organisation (ICO),
global coffee consumption for calendar year 2007 is estimated to increase
by 2.5 per cent to 123 million bags over the previous year’s consumption
of 120 million bags, which comprised of 31.3 million bags for domestic
consumption in exporting countries and 88.6 million bags in importing
countries. Imports of apparel grade wool, which were used in
warm clothes manufacturing, are estimated to decline by 4 per cent, due to
increased usage of domestically made coarse grade wool that was utilized
earlier mainly for carpet weaving in the country.
Total imports of apparel grade wool are estimated to be at 95.70
million kg this year against 99.62 million kg over last year. According to
data compiled by the commissioner of textiles, 80 per cent of the
country’s raw wool production goes into manufacturing of carpets. Of the
remaining wool production, 15 per cent is coarse grade wool and 5 per cent
is apparel grade wool. The jute industry has urged the ministry of textile
to impose ban on the imports of A. Twill and B.Twill jute bags from The central government is set to cover the area of
tobacco crop under subsidised insurance scheme, beneath which it would
cover replanting cost and loss of income.
It has also been active in curtailing the promotion and consumption
of tobacco products within the country for bringing awareness among people
regarding its side effects on their health. The demand for tobacco is
rising worldwide due to reduction in cultivation. During the first week of
March 2008, price of FCV tobacco (used in cigarettes) has risen to Rs
95.40 per kg as compared to the normal price of Rs 50 per kg, as propelled
by demand. According to Seafood Exporters Association of India (SEAI),
US Department of Commerce has proclaimed anti-dumping duty review against
certain frozen freshwater shrimp from The National Egg Co-ordination Committee (NECC) has
urged the central government to provide benefits of loan waiver upto Rs
38,000 crore to the poultry farmers, as this sector is facing crisis from
last 30 years. Since 2006, poultry industry has suffered a loss of Rs
11,000 crore, because of occurrence of bird flu; fall in farm gate prices
and suspension of exports. (During the recent bird flu outbreak in The Tamil Nadu Agricultural University (TNAU) has
joined with the Norwegian Institute for Agricultural and Environmental
Research (Bioforsk) and the International Pacific Research Centre (IPRC),
University of Hawaii (US) to initiate a collaborative research on
mitigating the negative impacts of global warming on Indian agriculture,
especially on rice productivity. This project would be financially
supported by the Ministry of Foreign Affairs, Industry A substantial fall was registered in the growth rate of index of industrial production during January 2008 as compared to January 2007. The growth in the index of industrial production during January 2008 at 5.3 is less than half that recorded in January 2007 (11.6 per cent). All the three major groups contributed for this slow down. As a result during the fiscal so far registered IIP index rose by 8.7 per cent as compared to 11.2 per cent last year. Mining sector and electricity sector grew by 1.8 per cent and 3.3 per cent during the month. The growth of manufacturing sector is at 5.9 per cent during January is much below to that of 12.3 per cent recorded last January. Out of the 17 industries, two industries declined and five industries registered double digit growth.. As per use-based classification, the sectoral growth rates in January 2008 over January 2007 are 3.5 per cent in basic goods industries, 2.1 per cent in capital goods and 7.0 per cent in intermediate goods. Consumer goods recorded an increase of 7.0 per cent. Infrastructure The index of six core infrastructure industries
having a combined weight of 26.7 per cent in the index of industrial
production registered a slower growth of 4.0 per cent as compared to 9.0
per cent in December 2007. The dismal performance of crude petroleum which
registered a negative growth of 1.5 per cent against a growth of 6.0 per
cent last year, and comparatively lower growth performance of refinery
products, electricity, cement, steel all contributed for the lower rate of
growth. However, coal production for the fourth month in succession
registered a faster growth with its production rate registering a growth
of 8.4 per cent in December 2007 as against a low growth of 2.9 per cent
in November 2006 Inflation The annual rate of inflation calculated on a
point-to-point basis, rose by 5.11 per cent for the week ended March
01,2008 as compared 6.51 per cent as on March 03,2007. Index of Primary Articles group rose by 0.3 per cent
to 229.0 from 228.4 for the previous week. Food articles group rose by 0.1
per cent. Index of non-food articles rose by 1.2 per cent mainly due to
higher prices rape and mustard seed, raw tobacco, raw rubber, copra,
gingelly seed and groundnut seed. The index for the major group Fuel, Power, Light and
Lubricants gone up by 0.1 per cent due to higher prices of aviation
turbine fuel. The index of manufactured products went up by 0.2 per
cent due to higher prices of khandsari, rape and mustard oil ,imported
edible oil, rice bran oil, gingelly soil, sale, ghess, ground nut oil.. The final WPI for all commodities had been revised
upward from 216.6 to 217.6 for the week ended January 1,2008. As a result
the rate of inflation calculated on a point-to-point basis stood at 4.26
per cent as compared to 3.79 per cent provisional. Banking SBI became the second bank in the world to have
10,000 branches after Bank of Maharasthra has targeted an overall growth of
25 per cent besides recoveries of retail bad loans of about Rs 270 crore
by the end of 2007-08. At least two foreign lenders, the Hong Kong and
Shanghai Banking Corporation and Barclays, are likely to take the
inorganic route to expand their footprint in State Bank of Financial
Market Capital MarketsPrimary Market In the light of poor market sentiments and adverse
developments in the financial markets in The Ahmedabad-based Kiri Dyes and Chemicals Ltd (KDCL),
manufacturer and exporters of dyes and dyes intermediates, is entering the
capital market with its initial public offering (IPO) of 37.5 lakh equity
shares of face value of Rs 10 each, to raise funds for executing its
backward integration project for manufacturing three key raw materials for
dye intermediates. The shares will be offered at a price-band of Rs 125 to
Rs 150 per equity share. Ratnagiri Gas and Power Pvt Ltd (RGPPL), the
erstwhile Dabhol project, would tap the capital market by the end of this
year. RGPPL is planning an IPO to raise Rs 1,000 crore. Currently,
RGPPL’s total equity capital base is Rs 4,000 crore. Out of which,
promoters GAIL, NTPC, Maharashtra State Electricity Board and financial
institutions have, so far, contributed Rs 2,985 crore and the balance is
to be raised through the IPO. The company plans to use the IPO proceeds to
repay the debt it has taken from Power Finance Corporation (PFC) and NTPC.
The company has made pre-IPO placement of 12.50 lakh equity shares to an
investor, the amount aggregating to Rs 14.44 crore, which the company
proposes to utilise towards the objects of the issue SEBI has directed merchant bankers to directly
respond to investor complaints pertaining to IPOs, instead of merely
forwarding the issuer company’s answers to such complaints. In case
there is an inadequate disclosure in the offer document, the merchant
banker’s reply to the same to the investors should also be forwarded to
SEBI. SEBI has stated in the circular that the merchant bankers have to
make sure that the collection agents, in charge of the issue, are aware of
this and in case they refuse to accept the application form, the merchant
bankers will be held responsible. The SEBI has received a large number of complaints
from retail investors against Reliance Power Ltd IPO, this was disclosed
in Parliament on March 11. Till March 3, 2008, SEBI has received 2,261
grievances relating to non-receipt of refund, credit of shares and
non-receipt of interest on delayed refund. SEBI has transmitted these
grievances to the company for necessary action, the Minister of State for
Finance said, in reply to a question. Rural Electrification Corporation Ltd made its debut
at a premium of 23.7 per cent against the issue price of Rs 105 on the NSE
on March 12. Kerala-based electrical equipment maker V Guard Ltd
on Thursday made its debut at a premium of 9.7 per cent against the issue
price of Rs 82 on the NSE. The company’s shares touched an intraday high
of Rs 98.95 and a low of Rs 72.60 before closing the day at Rs 75.95. Calcutta-based private sector railway wagon
manufacturer Titagarh Wagons Ltd announced that it would be entering the
capital market with an IPO of 23.8-lakh equity shares. The issue will open
on March 24 and will close on March 27. The price band for the issue has
been fixed between Rs 540 and Rs 610 per equity share. The company
proposes to list its shares on both the BSE and NSE. Secondary Market Winds of turbulence originating in the Continued flow of negative news pertaining to global
economy kept the market depressed and volatile. The developments on the
domestic front only added to the concerns. A surge in inflation coupled
with lower-than-expected industrial production data negatively surprised
the markets. The 30-share BSE Sensex lost 215 point or 1.35 per
cent to 15,760.52 in the week ended Friday, 14 March 2008. The broader CNX
S&P Nifty shed 25.8 points or 0.54 per cent to 4745.80 in the week.
The BSE Mid-Cap lost 220.94 points or 3.25 per cent to 6,583.45 and the
BSE Small-Cap index slipped 329.68 points or 3.92 per cent to 8,079.50 Equity markets remain volatile during the week.
Announcement of mark to market losses by ICICI bank's foreign operations
in its exposure in credit derivatives, reports suggesting huge commodity
hedging losses suffered by a subsidiary of L&T and abysmal industrial
production data triggered selling. However, strengthening of European
markets, liquidity infusion by Fed and emergence of buying at low levels
provided support to the market. Going forward, uncertainty regarding the
global credit crisis will weigh on market sentiments. Outcome of US Fed
meet will be keenly watched to provide further direction to the market. The BSE has revised the circuit filters for more than
1600 stocks as part of their surveillance action. The circuit filter that
came into effect from March 10 has been revised to 10 per cent for 1,118
companies, 5 per cent for 468 companies and to 2 per cent for 22
companies. A circuit-breaker is a device that halts trading in a stock if
the price changes by a pre-determined percentage on a given day. The stock
exchanges have 2, 5, 10 and 20 per cent circuit breakers on certain
stocks. Circuit filters are tightened to control the movement of scrips in
times of high volatile markets. Derivatives As the Nifty hit a six-month low and bounced,
volatility rose in the derivatives market. Trading volumes also rose
somewhat and the signs of greater liquidity in mid-month Nifty contracts
suggested that carryover into April has started. The Nifty has been
swinging by around 150 points per session and that has probably dragged
more players into the derivatives market. However, the foreign
institutional investors (FIIs) still hold an overwhelming 45 per cent of
all futures and options (F&O) outstanding positions. The Nifty itself
closed at 4,746 on Friday with the March contract settled at 4,746.95,
April at 4,729.45 and May at 4,705.15. There was a sharp 22 lakh decline
in open interest in March contracts but around 4.5 lakh new positions were
added to April-May open interest. Government Securities Market Primary Market Four state governments raised Rs. 4,349 crore at
cut-off yields ranging between 8.28 per cent and 8.45 per cent. Secondary Market Inflationary concerns keep market volumes low.
Inflation based on the wholesale price index (WPI) rose 5.11 per centin
the 12 months to 1 March 2008, higher than the previous week's rise of
5.02 per cent, government data showed on Friday, 14 March 2008. The rate
was the highest since 26 May 2007. The yield on 7.99 per cent 2017 firms
up to 7.63 per cent- 7 bps higher than previous fortnight's close of 7.56
per cent. RBI announces additional LAF auctions to ease
liquidity crunch post-advance tax outflows. Daily average reverse repo
absorptions stood at Rs. 16,708 crore during the fortnight. Weighted
average Call and CBLO rates end the fortnight at 6.24 per cent& 6.08
per cent respectively On whether the widening of interest rate differential
between The Union Finance Minister, Mr P. Chidambaram,
underscored the need to augment production and productivity in wheat,
rice, edible oil and pulses, stating that the rise in the prices of
imported primary food articles was driving inflation here. He contended
that the country could insulate itself against the rise in their
international prices by becoming self-sufficient in these commodities. The
Finance Minister noted that it would not be easy to tame inflation as long
as Bond Market State Bank of Hyderabad (SBH) will raise Rs 900 crore
capital through upper tier II and tier I route shortly to meet the Basel
II compliance requirements by the end of this month and for operational
flexibility. Foreign Exchange Market In the forex market, bearish sentiments in global
markets resulted in rupee falling to its 6-month low level. Low risk
appetite of global investors and a continuous decline in the domestic
equity market, triggered a sell-off resulting in huge dollar demand. While
dollar selling by the exporters provided some support, it failed to meet
the requirements of oil companies and foreign banks clubbed together.
Rupee remained volatile throughout the week. Aggressive dollar buying by
oil companies took rupee further lower against dollar. However, heavy
dollar selling by FIIs and exporters gave support to the rupee. With
domestic equity market fluctuating widely, rupee movement against dollar
was also highly volatile. With crude oil prices scaling fresh all-time
high levels, oil importers' demand for dollars kept rising. However,
recovery in the stock market and dollar inflows from exporters aided the
rupee. Rupee ended the week at Rs 40.48 - 46 paise per dollar. Dollar selling by FIIs and exporters heightened
supply of dollars thereby pushing the forwards to premia. Annualized 3M
forwards averaged at 0.29 per cent, higher than previous fortnight's level
of -0.36 per cent, 6M forwards averaged at 0.52 per cent, higher than
previous fortnight's 0.20 per cent. The Finance Minister, Mr P. Chidambaram, has said
that the Government may take “temporary measures” if needed to
“modulate” capital inflows into the country. Commodities Futures derivatives Larsen and Toubro Ltd has suffered a loss of about Rs
200 crore in commodity hedging in the current fiscal. The losses were on
account of hedging contracts in metals entered into by its wholly owned
UAE subsidiary, L&T International FZE.
Mr Y.M. Deosthalee, Chief Financial Officer, L&T, said that
during 2007-08, there has been extreme volatility in the markets,
especially in commodity prices. RiddiSiddhi Bullions Ltd, a bullion trading company
with an annual sales of $1 billion, launched India’s first electronic
over the counter (OTC) bullion trading platform, called RSBL SPOT (Spot
Precious metal Online Trading). Gold contracts of 100 gm (0.999 purity)
and 1 kg (0.995), besides contracts of 30 kg silver (0.999 purity) will be
available for trade. Delivery centres will be in Mumbai, Ahmedabad and Insurance Insurance majors are likely to get a breather with
the IRDA and the government set to extend the deadline for their listing
on the bourses. With the FDI limit still capped at 26 per cent, the
regulator may decide to provide more time to insurers for launching their
IPOs. At present, all insurance firms are mandated to list within 10 years
of operation. According to official sources, the government and the
regulator are free to take a re-look at the issue and set fresh deadlines
for listing at their own discretion. Industry experts said there could be
a serious crunch of capital in the coming 2-3 years, if the FDI limits is
not raised to 49 per cent from 26 per cent. The issue of the comprehensive
amendment of the Insurance Act has been referred to the Group of Ministers
(GoM). However, the GoM is yet to submit its report on the issue. Corporate
Sector Tata Motors has mandated State Bank of India (SBI) as
the sole lead manager to raise $3 billion that will fund the acquisition
of Jaguar and other auto brands. Debt may be raised through syndication,
as bridge loan of 12-15 months at 4.29 per cent. Shoppers Stop will be adding 2.7 milliono sq. ft. of
retail area to its existing spread of 1.3 million sq ft over the next 3-4
years, as part of a Rs 1000 crore plan that will include investment in a
new acquisition, its other formats and the airport retail joint venture. Hospitality group Kamat Hotels has tied up with HPCL
for retail space at the latter’s petrol pumps spanning across highways
and cities for its new restaurant chain called Vithal Kamat vegetarian
restaurant. Bharti-Retail, which has tied up with Wal-Mart, the
world’s largest retailer, will name its convenience stores Bharti
EasyDay. A total of 5 stores will be launched initially. Wal-Mart has a
technical agreement with Bharti for its front-end retail stores.
Reliance Life Sciences is betting big on contract
research, with plans for acquiring a contract research organization (CRO)
in The country witnessed 36 M&A deals with a total
announced value of $2.95 billion in the month of February 2008, according
to a Grant Thornton report. The most significant deals were HDFC Bank’s
merger with Centurion Bank of Tata Chemicals, Telecom The country’s second largest GSM operator, Vodafone
Essar, suffered a major setback with the TRAI directing it to refund
within 15 days to all the consumers charges for value-added services in
cases where the services were provided without explicit consent of the
subscribers. Global Communications services provider Nokia Siemens
Networks entered into an agreement with leading domestic IT services firm
TCS. Under the agreement, the former will transfer its product engineering
and R&D services as well as part of the Operations and Business
Software (OBS) unit activities to TCS.
*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. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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