Fiscal Scene of the state

Highlights of  Current Economic Scene

AGRICULTURE  

As per the third advance estimates for 2007-08 released by ministry of agriculture, total foodgrain production is likely to touch 227.32 million tonnes during the season (July 2007–June 2008), showing a rise of 4.6 per cent against last year’s production of 217.28 million tonnes, on account of good weather conditions, normal rainfall, quality seeds and inputs. Of the total food grain production, rice comprises of 95.68 million tonnes, wheat of 76.78 million tonnes, coarse cereals of 39.67 million tonnes and pulses of 15.19 million tonnes. Among coarse cereals, jowar and maize is estimated to be 7.73 million tonnes and 18.54 million tonnes, respectively. Production of tur and urad is expected to be around 3.03 million tonnes and 1.56 million tonnes, respectively. Oilseeds’ production during the year is estimated to be at 28.21 million tonnes, up by 3.92 million tonnes, owing to rise in production of groundnut and soyabean by 8.87 million tonnes and 9.43 million tonnes, respectively. Production of rapeseed and mustard is expected to decline marginally to about 1.01 million tonnes to 6.43 million tonnes due to unfavorable climatic conditions for the crop. Cotton production is estimated to be at 23.19 million bales of 170 kg each. Production of sugarcane is pegged at 344.23 million tonnes during 2007-08, which is expected to be lower by 11.29 million tonnes as compared to 355.52 million tonnes in 2006-07.

As per the central government, exports of wheat, pulses and oilmeals have decreased over the previous year on account of ban on exports, while rice and sugar exports have increased as compared with last year. Wheat exports fell sharply to 240 tonnes during the period between April-December 2007, from 47,830 tonnes over a year.  More over, exports of pulses dropped to 1,40,830 tonnes in the first nine months of fiscal year 2007-08 and during the same period oilmeals exports also declined to 4.03 million tonnes, from 6.59 million tonnes of last year.

Low procurement of wheat for the central pool during the 2007 and high demand for wheat in domestic market have led the central government to direct the four states, namely, Maharashtra, Madhya Pradesh, Rajasthan, and West Bengal to import wheat from global market, during the period March- May 2008, to meet half of their total wheat requirement under PDS and other welfare schemes. The central government has scrapped wheat tender, as the bids quoted were too high and it is expected that global prices would fall in the near future, as the wheat crop is seen higher in the exporting countries such as Australia , Europe and Canada .

Shortfall of rice for consumption, in most of the countries have encouraged world’s top rice exporter, Thailand, to develop a new hybrid variety of rice with a potential of producing yield 20 per cent more than other varieties and it is designated as PTT06001H. It is expected that it can produce yield at an average of 962 kg per rai or 20 per cent more than two other varieties that are most popular among local consumers in Thailand .

The Directorate General of Foreign Trade (DGFT), has withdrawn various incentives and benefits under the duty entitled pass book (DEPB) scheme, Vishesh Krishi and Gram Udyog Yojana and Focus Market schemes for the exports of Skimmed Milk Products (SMP), Casein and other milk products.

The Animal Husbandry Department had urged central government to impose ban on exports of oilmeal in view of rising prices of milk, eggs and meat and to review the decision to ban export of cooking oils, since hardly 10,000-15,000 tonnes were being imported. But the ministry of agriculture has withdrawn the concept of banning oilmeals and has decided to re-examine the ban on export of oils in small packets.

Exports of castor seed meal from India have seen a whopping jump since last five years, as castor seed meal is rich in potash and nitrogen, and it is utilised by most of the fertiliser manufacturers. In 2004-05, castor seed meal exports were mere 70,750 tonnes, which eventually crossed 2.01 lakh tonnes in 2005-06 and it further went up to 2.02 lakh tonnes in 2006-07. As on march 31, 2008 India exported more than 3.30 lakh tonnes of castor seed meal. Demand from the oversea countries for the castor seed meal have been surging by 64 per cent in 2007-08, owing to which prices of the crop have doubled within last eight months. South Korea and Taiwan was the substantial buyer of castor seed meal. South Korea alone has imported 75 per cent of India’s total castor seed meal accounting more than 2.55 lakh tonnes, where as Taiwan has imported 74,325 tonnes during 2007-08. Gujarat has produced grew 8 lakh tonnes of castor seed in 2007-08 and exported almost 50 per cent of it as castor seed meal.

Latest report by United States Department of Agriculture (USDA) (April 2008) has projected that world cotton production would be at 119.7 million bales in 2007-08 (August-July), which is 0.25 per cent higher than its previous estimates made in December 2007. The increase is expected to come mainly form the countries like India and US. However, cotton production is expected to be lower than that of 2006-07 by 1.8 per cent. World cotton consumption in 2007-08 is slated to grow by 1.4 per cent to hit an all time high level of about 125 million bales. The growth is being propelled by rising demand for cotton by the worlds leading cotton users, including China , India , Pakistan and Turkey . Demand for cotton is growing steadily in Vietnam , Egypt , Iran and Brazil . World cotton exports in 2007-08 is estimated to be at 38.9 million bales, up by 4.5 per cent from the previous year. The US , the worlds leading exporter of cotton, is expected to meet 37 per cent of the global supply.

Gujarat witnessed inclement weather conditions at the beginning of April, which led to a reduction in the cotton crop from an estimated 125-lakh bales (of 170 kg. each) to 90 -100-lakh bales. The state had produced 92-lakh bales cotton production in last year. . The share of Gujarat in the total cotton production has gone up from 17 per cent in 2001-02 to 40 percent in 2007-08. Over the last few years, groundnut is being replaced by Bt cotton in the state. So, the area under cotton has increased from 16 lakh hectares in 2003-04 to 25 lakh hectares in 2007-08, whereas the area under groundnut has decreased from nearly 20 lakh hectares to 16 lakh hectares during the period.

Total shipment of cashew kernels during the period between April-February 2007-08 has stood at 1,03,139 tonnes valued at Rs 2,033 crore as compared with 1,06,975 tonnes valued at Rs 2,222.15 crore during the corresponding period of last year. The value realisation in dollar terms during the first 11 months of current fiscal has increased by US $15.25 million to US $ 505.14 million from US $ 489.89 million during the same period a year ago. 

According to government data, the state of Andhra Pradesh had received only 20.96 lakh tonnes last year against a total requirement of 28.88 lakh tonnes of complex fertilisers, , experiencing a shortfall of fertilisers. Hence, to have enough stock of fertilisers this year, state government has given permission to the Andhra Pradesh State Co-operative Marketing Federation Ltd (AP Markfed) to raise a loan of Rs 500 crore for purchasing fertilisers for ensuing kharif season. The interest of the loan would be borne by the state government. The state has planned to distribute 10 lakh tonnes of fertilisers during Kharif 2009. So far, it has purchased around 48,653 tonnes of fertilisers and distributed 5,000 tonnes and remaining 43,000 tonnes are stored in different government godowns, which would be distributed by the kharif season.

The state government of Uttar Pradesh has opened up agriculture retail segment for corporate’s.  The government has granted licenses to more than 40 companies for purchasing agriculture produce directly from farmers, so that farmers would receive better prices for their produce.

As per National Egg Coordination Committee (NECC), prices of poultry had dropped due to outbreak of bird flu and breeders reducing production on account of lower sales. In the view of soaring prices of vegetables and pulses, the demand for the poultry products has been rising, pushing their prices to surge by 15 per cent.

Industry

A pick up in the index of industrial production has been seen during February 2008 as compared to February 2007. The growth in the index of industrial production during February 2008 at 8.6 is less than half that recorded in February 2007 (11.0 per cent). All the three major groups contributed for this pick up. 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 7.5 per cent and 9.8 per cent during the month. The growth of manufacturing sector is at 8.6 per cent during February has been much below to that of 12.0 per cent recorded last February. Out of the 17 industries, two industries declined and eight industries registered double digit growth.. As per use-based classification, the sectoral growth rates in February 2008 over February 2007 are 7.3 per cent in basic goods industries, 10.4 per cent in capital goods and 8.2 per cent in intermediate goods. Consumer goods recorded an increase of 9.2 per cent.

Infrastructure

Riding on the back of good performance of coal, electricity and cement the index of six core infrastructure industries having a combined weight of 26.7 per cent in the index of industrial production with base 1993-94 registered an impressive growth of 8.7 per cent during February 2008 as compared to 7.6 per cent in February 2007. This impressive performance exhibited by  the  core industries in February 2008 resulting the core index registering a growth of 5.6 per cent during the fiscal so far as against 8.7 last year. All the six-core industries witnessed better performance during February 2008 compared to January 2008.. Thus refinery products, electricity, cement, steel and coal all contributed for the higher rate of growth.

Inflation

The annual rate of inflation calculated on a point-to-point basis, rose by 7.33 per cent for the week ended April 12,2008 as compared 6.34 per cent as on April 14,2007.

Index of Primary Articles group rose by 0.5 per cent to 237.1 from 236.0 for the previous week. Food articles group rose by 1.6 per cent. Index of non-food articles rose by 0.4 per cent. Minerals group rose by 5.8 per cent due to higher prices of iron ore and other minerals. due to fall in prices of rape and mustard seed.

The index for the major group Fuel, Power, Light and Lubricants rose by 0.03 per cent to 342.1 due to higher prices of bitumen and lubricants.

Manufactured products rose remained stationary at its previous week’s level.

The final WPI for all commodities had been revised upward from 218.8 to 220.4 for the week ended February 16,2008. As a result the rate of inflation calculated on a point-to-point basis stood at 5.66 per cent as compared to 4.89 per cent provisional.

Banking

South African private bank, FirstRand is opening its representative office in Mumbai. The bank has also sought permission from the RBI to open branches in Gurgaon, Chennai, Hyderabad , Bangalore and Coimbtore.

Kotak Mahindra Bank marked its foray into credit card business with the launch of a visa-enabled credit card. Initially, the bank is launching the card in 10 cities.

UK-based private equity major, 3i Group Plc has announced that it has raised $1.2 billion for its 3i India Infrastructure Fund, which is about 20 per cent higher than the initial $1 billion target.

Standard Chartered Bank, the largest international bank in India , will be investing $250 million in its Indian operations, raising the total capital base to $1.9 billion.

Financial Sector

Capital Markets

Primary Market

New Fund Offers (NFOs) are making a comeback after a lull in the previous two months, due to a stabilising equity market. This is in contrast to last year when investors were lured by a flood of NFOs. The fund houses are now rolling out products, which were held over for the last few months owing to weak market sentiments. Confidence of investors as well as fund houses to come up with the new products encouraged by attractive valuations and strengthened liquidity. Sundaram BNP Paribas Mutual Fund recently launched its Financial Opportunities and Entertainment Opportunities Fund, AIG Investments launched world gold fund, and ICICI Prudential launched Focused Equity Fund.

On April 23,2008, Pawan Kumar Bansal informed in Parliament that, more than half of the total number of IPOs listed on the bourses in the last two years are trading below their offer price, with one-third trading at a discount of 40-60 per cent. During April 1, 2006-March 31, 2008, the number of IPOs listed on the BSE stood at 150, of which 86 are trading below their offer price, of these, 36 IPOs were trading at a discount of more than 40-60 per cent of the issue price. On the National Stock Exchange, of the 162 IPOs listed during the same period, 88 were trading below the issue price and 38 at a discount of more than 40 per cent of the issue price.

The Ahmedabad-based company Kiri Dyes and Chemicals Ltd, a manufacturer of reactive dyes and dye intermediates, made its debut at Rs 184 on the NSE and at Rs 151 on the BSE on April 22, 2008. The stock opened at a premium of 22.6 per cent on the NSE, closed at Rs 158.95, at a premium of 6 per cent against its offer price of Rs 150. On the BSE, it ended the day at Rs 158.55, a premium of 5.7 per cent.

Secondary Market

Firm global markets and good Q4 results provided a strong foundation to the markets. A 50 bps hike in CRR could not stop the BSE Sensex from moving up nearly 4 per cent to end the week at 17,126. During the week, BSE Sensex gained 645 points in which more than half of the gains came on Friday following steady build-up of fresh positions in the derivatives segment on the first day of May 2008 series. The 30-share BSE Sensex galloped 404.90 points. Settlement week went through with net gains and the Nifty closed up 3.09 per cent at 5111.7 points. The BSE Mid-Cap index rose 219.82 points or 3.22 per cent to 7,056.21 in the week. The BSE Small-Cap index slumped 196.36 points or 2.30 per cent to 8,727.72.

Among the sectoral indices of BSE except IT, all other major indices registered gains over the week. Metal, Bankex and Reality experienced the highet gain with 7.33 per cent, 6.90 per cent and 6.69 per cent respectively. BSE IT has been the only indice, which recorded negative gains over the week.

According to sources, amongst the emerging markets, India made the most of the bull run witnessed in the year 2007. But, the Indian markets are now among the worst performers among peers in terms of recovering from the recent subprime crisis. Among the key Asian Markets, China ’s Shanghai Composite has been the worst performer, which fell by more than 32 per cent since the beginning of the year, while the Jakarta Composite Index lost 18.4 per cent. The BSE Sensex has been the third worst performer, posting a negative return of around 15 per cent.

On April 21, 2008, the Securities & Exchange Board of India (SEBI) came out with a clear definition of the term shareholders that the shareholders cannot hold more than 49 per cent of the total stake in the bourses, who also have trading rights in stock exchanges like sub-brokers and spouses. As per the demutualisation process, each stock exchange has to bring down the proportion of shares held by those having trading rights in stock exchanges up to 49 per cent. The rest 51 per cent or more will have to be offloaded in favour of those who do not have trading rights in the stock exchange. 

Paving the way for domestic asset management companies (AMCs) to invest directly in real estate, market regulator SEBI unveiled the much-awaited guidelines for real estate mutual funds (REMFs), which mandated that at least 35 per cent of the corpus of a scheme been invested directly in real estate assets. The remaining funds can be allocated for mortgage-backed securities and instruments of companies in the sector. A statement issued by the capital market regulator said that investment in real estate assets and real estate-related securities have to be less than 75 per cent of the net assets of the scheme.

According to the latest report by domestic brokerage company Sharekhan, mutual funds (MFs) are gathering on Rs 23,545 crore of cash, which is waiting to be deployed in the market. Of this, Rs 19,214 crore lies with existing MFs, while the remaining Rs 4,331 crore has been mobilised through NFOs. As the market continued with uncertainity, fund managers have decided to play it safe as is quite evident from the cash position (percentage of net assets) of the various funds. According to an analysis of the equity portfolios of March, funds are on a strict liquid diet. This will not only insulate the fund from abrupt fluctuations as much as possible, but also give the fund managers ample leeway to cherry pick as and when the market throws up great opportunities. Out of the entire MFs industry, diversified equity funds were having cash of Rs 7,859 crore (8.64 per cent of the total assets) at the end of March against Rs 4,773 crore (4.46 per cent of total assets) in January 2008. According to Value Research, 108 diversified equity funds increased their cash allocation expressed as percentage of net assets, while 33 saw a decline. The 11.6 per cent fall in the overall fund flow was due to the 31 per cent reduction in the amounts mobilised through NFOs coupled with a 27 per cent rise in redemption volumes, it stated. In line with the sharp fall in equity markets, all sector funds had generated negative returns in February 2008. Fast moving consumer goods funds gave the highest returns in February 2008, followed by pharmaceutical and automobile funds. MFs have slashed their exposure to banks, power and housing and construction companies and have bought stocks in pharmaceutical, telecom and oil and gas sectors.

Private equity (PE) investments in India have grown to $4 billion in the first quarter ended March 31 of calendar year 2008, two times more than the value registered during the corresponding period last year. Through this, India has maintained its position as the hottest investment destination in Asia (excluding Japan ) and has even surpassed China , which has recorded just $570 million so far. In 2006, China received $13 billion in PE investments in 2006 compared with India ’s $7 billion.

Derivatives

The Reserve Bank of India (RBI) has initiated talks with accounting standards regulator Institute of Chartered Accountants of India (ICAI) to advance the mandatory implementation of accounting standards for derivatives transactions by Indian banks and companies from its present 2011 deadline. Now, for banks and companies, the new accounting standard AS-30 is optional till March 31, 2011. The RBI wants banks to adopt AS 30 and AS 31 from 2009-10, fearing that derivative deals could affect banks and their profitability.  

The market surged in settlement week although volumes were very thin. Intra-day volatility dropped and the VIX also stayed at low levels. Sentiment seems to be positive heading into the new settlement. Volumes were exceedingly low with daily F&O turnovers down below the Rs 35,000 crore mark.  In the index futures market, liquidity and prices reflected the higher level of trading confidence. The liquidity in non-Nifty contracts were significantly better than one would expect two sessions into a settlement.  The Nifty closed at 5112 in spot and it has been settled at 5126, 5120 and 5117 in May, June and July respectively. The premium on Nifty May futures suggests that the market remains optimistic. Other indices only had OI in May. The Junior closed at 8964 in spot and it has been settled at 8954.5. The BankNifty closed at 7616 and it has been settled at 7628. The CNX IT closed at 4165 and settled at 4166 while the Midcaps-50 closed at 2664,and settled at 2660. The Bank Nifty had the best OI almost a lakh. The differential in the BankNifty will probably ease on Monday because the spot is likely to catch up. The PCR (OI) is bullish overall at 1.39 while the May PCR is 1.24 and PCR for June-July combined is 1.82, which is tending to oversold.    

Government Securities Market

Primary Market

RBI auctioned 10 year paper maturing in 2018, for the notified amounts of Rs.6,000 crore at the cut-off yields of  8.24 per cent on April 21, 2008.

RBI re-issued 8.33 per cent 2036 for Rs.4,000 crore on April 21, 2008 at the cut-off yields of 8.77 per cent.

On April 23, 2008, RBI auctioned 91-day and 364-day T-bills for the notified amounts of Rs.2,500 crore (out of which Rs.2,000 crore under MSS) and Rs.2,000 crore (out of which Rs.1,000 crore under MSS), respectively. The cut-off yields for 91-day and 364-day T-bills were 7.44 per cent and 7.69 per cent respectively.

Four State Governments auctioned 10-year paper maturing in 2018, through an yield based auction using multiple price auction method on April 22, 2008 at cut-off yields ranging from 8.50-8.60 with the lowest for Uttarakhand and Kerala and the highest for West Bengal . RBI has set the underwriting commission cut-off rate at 27.78 paise per Rs.100 in respect of the auction of West Bengal State Development Loan.

Secondary Market

Inter-bank call rates mostly lingered in the range of 5-6 per cent during the week, indicating comfortable liquidity in the system. However, quotes rose above 6 per cent on occasions, as banks appeared reluctant to lend ahead of the CRR hike taking effect and some auctions lined up. At the weekend liquidity adjustment facility (LAF), the mop-up through reverse repurchase auctions were Rs 32,765 crore owing to surfeit liquidity in the banking system. At the LAF, RBI absorbed an average of Rs 27,013 crore through the reverse repo window. Bonds paused ahead of the Credit Policy as fears of a slowdown and inflation loomed large.

The bond market expects the central bank to adopt a hawkish stance when it unveils it annual monetary policy statement on April 29,2008. At a time when inflation has remained over 7 per cent for three consecutive weeks now and ten year bond yields hovering over 8 per cnnt, the bond market does not rule out some more tightening measures by RBI governor Y V Reddy in his policy statement.

Bond Market

As per the Asian Development Bank’s report, India 's corporate bond market remains underdeveloped despite strong economic growth and significant financial system reforms. The observations are a part of the recently released edition of Asia Bond Monitor, a semi-annual publication, which includes a theme chapter on Indian bond market. The report stated that corporate borrowers continue to depend on bank loans, equity markets and private placement to meet their requirement of funds. To address the lack of liquidity in the bond market, the report suggested easing investment mandate on contractual savings institutions, developing derivative and swap markets and facilitating foreign investment by relaxing exchange controls. The report also advised reforming the stamp duty structure and revamping disclosure requirements for corporate public offers. 

The curve shifted higher and flattened with shorter-tenor yields rising sharply while beyond the nearer segment yields rose by a lesser margin. The rise was in reaction to the CRR hike and market activity remained low. AAA 5-year bond yield rose to 9.62 per cent from 9.56 per cent and the spread was at 137 bps from 132 bps.

Some banks and public sector companies have put on hold resource-raising through corporate bonds due to uncertainty of interest rates. Market participants are keenly watching out for the monetary policy to be announced by the RBI on April 29, 2008. According to the Fixed Income Money Market and Derivatives Association (FIMMDA), the total corporate bond issuances have been just Rs 11.58 billion this month so far. In April 2007, total corporate bond issuances were around Rs 15 billion.

Punjab State Electricity Board tapped the market by issuing bonds to mobilise Rs 250 crore by offering 9.40 per cent for 10 years. The bond has been rated A- (so)+BBB (so) by Care and Icra.

Foreign Exchange Market

The rupee fell to a month’s low level of 40.25 per dollar owing to a surge in corporate demand and brief NDF arbitrage. The rupee closed the week at 40.12 per dollar from 39.95/$. Earlier, the rupee started with a spike to 39.82 per dollar, but state-owned banks entered the market soon and bid the dollar back up to around 39.95 per dollar. The rupee continued to hover around 39.95 per dollar with support from the stock market and improving global conditions but inflows were not particularly strong and crude oil prices started weighing on the unit. Forward premia shot up in knee-jerk reaction to the CRR hike, but since came off gradually in a correction. Forward premia for one, three and 12 months widened. Six months premium softened due to anticipated inflows from exporters. Premia for one, 3, 6, and 12 months were 0.60 per cent (0.75 per cent), 2.29 per cent (2.10 per cent), 2.19 per cent (2.30 per cent) and 1.89 per cent (1.70 per cent).

As per experts’ views, Reserve Bank of India (RBI) should come out with "unambigious clarification" with regard to forex derivatives trading, which has landed many banks including ICICI Bank and Axis Bank in courts.  In addition to ICICI Bank and Axis Bank, several small and medium enterprises have filed cases in different high courts against Yes Bank and Kotak Mahindra Bank that are trying to recover losses from the corporates. Companies in all these cases are resisting recovery of losses incurred by banks.

Commodities Futures derivatives

Commodity markets regulator, Forward Markets Commission (FMC), has been considering a ban on hedge funds and PE funds from trading on the country’s commexes. FMC’s chairman, BC Khatua, stated that although hedge and PE funds play a major role in foreign markets, they would not like hedge and PE funds to come into commodity markets.

The government may soon announce a reduction in the commodities transaction tax in line with a recommendation by the Prime Minister’s Economic Advisory Council, headed by C Rangarajan. Prime Minister Manmohan Singh had asked the council to review the proposal, announced in the 2008-09 Union budget, following representations from industry and FMC. The council has submitted its report to the prime minister, recommending a partial withdrawal of CTT, saying that the new tax would be detrimental to commodities trading, which is still in its nascent stage.

After a firming trend during the week, crude oil on Friday retreated to $115 a barrel as a stronger dollar extended a sell-off and investors shifted cash to equities, but concerns over supply constraints limited losses. Gold, silver and copper futures prices weakened during the week, as gold in London tumbled to a three-week low as the dollar extended gains against the euro, eroding the appeal of the precious metal as an alternative investment. Silver declined following the yellow metal. The May crude oil contracts were higher by 3 per cent to trade at Rs 4,674 per barrel, up by Rs 142 over previous week. Total volume was 24.89 lakh barrels (41.34 lakh barrels) while open interest was 20.37 lakh barrels (13.51 lakh barrels). US crude futures fell $1.01 to $115.05 a barrel, adding to a loss of $2.24 a barrel. The active June gold contract was lower at Rs 11,541 per 10 gram. Total volume was 16,105 kg down from 35,199 kg. Open Interest increased to 8,000 kg from previous week’s 7,083 kg.

With the inflation rate hovering over 7 per cent in recent weeks, the government is looking at more subtle measures to control prices even after a slew of duty cuts and price control measures. The government may impose stringent ‘policing provisions’ on the commodity futures market having an average daily turnover of Rs 15,000 crore. This is aimed at curbing manipulation in the commodity futures trading, perceived to be fuelling inflation, the idea is to tighten the know-your-client (KYC) norms to adequately ascertain the source of funds flowing into the commodities market. Following a sharp hike in inflation, RBI has already started reviewing credit facilities to commodity traders and companies for select commodities, especially oilseeds. This was aimed at discouraging hoarding of such commodities.

The inter-ministerial group on inflation-control measures is preparing to bring back steel and its products under the ambit of the Essential Commodities Act, 1955 a year after declassified it from the list of essential commodities. The Act gives essential commodities at a fair price and gives power to the government to control production, supply and distribution of steel and its products.

As per data from the FMC, the total value of commodity trading in the second fortnight of March 2008 was Rs 2,12,465 crore, a significant 26 per cent rise from Rs 1,67,478 crore in the same period in the previous year. The cumulative value of trade in 2007-08 was Rs 40,65,990 crore, up 10.5 per cent from the Rs 36,76,927 crore traded in 2006-07.

According to FMC Chairman B C Khatua, a uniform tax structure and free movement of goods throughout the country were critical to the growing significance of spot trade in India . Spot exchanges are unlikely to succeed in the present framework of state and central levies, which vary from state to state and commodity to commodity. So far, two national commodity exchanges - the Multi Commodity Exchange (MCX) and the National Commodity & Derivatives Exchange (NCDEX) - have obtained clearances from a number of states to launch spot online trade and are in the process of facilitating trading in various commodities soon. Presently, spot trade in India is largely fragmented due to poor infrastructure and lack of state government interest. The Agriculture Commodity Marketing Committee (APMC) Act regulates spot trade in the country and the Act differ from one state to the other. Some states, including Bihar and Kerala, scrapped the APMC Act long ago and spot trades in these states are, largely controlled by local aaratias and prices are determined by the demand-supply situation on a daily basis.

Amid fears that the Centre may ban futures trading on agri commodities as part of its ongoing battle against inflation, the volumes of these commodities on MCX and NCDEX have started drying up. Both exchanges have witnessed a sharp decline in the daily trading volumes in terms of value. The daily volume of all agri commodity futures come down at NCDEX to Rs 2,000 to Rs 2,500 crore from Rs 3,000 to Rs 3,500 crore. Volume of agri commodities futures at MCX have also taken a beating, coming down to Rs 300 to Rs 500 crore.

After 14 months of deliberation, the five-member Abhijit Sen Committee on futures trading has failed to reach a consensus on whether to support or oppose the ban on futures trading in all farm commodities. The committee has decided that all its members, including the chairman, will attach separate notes to the main report, which has been expected to be submitted within two to three days. The committee, which met to sort out the differences among the members, decided that the common minimum report would not take a view on the contentious issue of banning or not banning commodity futures trading. Earlier, the committee had planned to recommend continuation of the existing ban on futures trading in some farm commodities and had included it in its draft report. The government had suspended futures trading in tur, urad, wheat and rice last year.

Gold, silver and copper futures prices weakened during the week as gold in London tumbled to a three-week low as the dollar extended gains against the euro, eroding the appeal of the precious metal as an alternative investment. Silver declined following the yellow metal. After a firming trend during the week, crude oil on Friday retreated to $115 a barrel as a stronger dollar extended a sell-off and investors shifted cash to equities, but concerns over supply constraints limited losses. The May crude oil contracts were higher by 3 per cent to trade at Rs 4,674 per barrel, up by Rs 142 over previous week. Total volume was 24.89 lakh barrels (41.34 lakh barrels) while open interest was 20.37 lakh barrels (13.51 lakh barrels). US crude futures fell $1.01 to $115.05 a barrel, adding to a loss of $2.24 a barrel. The active June gold contract was lower at Rs 11,541 per 10 gram. Total volume was 16,105 kg down from 35,199 kg. Open Interest increased to 8,000 kg from previous week’s 7,083 kg.

After a strong beginning in 2008, prices of industrial commodities, barring crude oil, were expected to cool down in the second half of the year. According to data compiled by the Economist Intelligence Unit (EIU), a London-based research agency, the prices of base metals are likely to fall 1.5 per cent as against a growth of 10.5 per cent last year.  According to EIU estimates, the Industrial Raw Materials (IRM) price index will rise by an average of 1.1 per cent in 2008 despite spot prices of major raw materials, including coke, copper concentrates, alumina, iron ore, ferro allows, having nearly doubled in the last one year.

The European Climate Exchange (ECX) has decided to introduce options contracts on Certified Emission Reductions (CERs) which will be available for trading from May16, 2008. The contract, formally known as the ICE ECX CFI CER Options Contract, will be listed and admitted to trading on the ICE platform and cleared by LCH Clearnet. The European Climate Exchange (ECX) manages the marketing and product development for ECX Carbon Financial Instruments (ECX CFIs), listed and admitted to trading on the ICE Futures electronic platform. Commenting on the new product, ECX chief executive, Patrick Birley, said, “Listed options on CERs will enable market participants to manage price rise more efficiently and take advantage of the underlying volatility. Following the successful start of CER futures, we believe this contract will further help the development of the maturing market for products linked to the Clean Development Mechanism.” ECX contracts are standardised and all trades are cleared by LCH Clearnet. More than 80 leading businesses have signed up for membership to trade ECX products. In addition, several thousand clients can access the market via banks and brokers. ECX and ICE futures is the most liquid, pan-European platform for carbon emissions trading, attracting over 80 per cnnt of the exchange-traded volume in the market.

Corporate Sector

The construction division of Larsen & Toubro (L&T) has secured Rs 2,000 crore order from Bombay Dyeing for development at the latter’s Textile Mills & Spring Mills complexes at Worli and Wadala in Mumbai.

In one of the biggest public private partnership initiative, Tata Power (TPL) will enter into an agreement with state-owned Bhel for sourcing equipments for all its future power projects. This would be the first time a private sector company placing a bulk order for a series of power projects with Bhel.

Reliance Industries Ltd (RIL) has recorded a rise of 63 per cent in its net profit to Rs 19,458 crore for the fiscal ended March 2008 compared with Rs 11,943 crore in 2007. However, this included exceptional gains of Rs 4,733 crore in 2007-08, on account of transactions concerning shares of subsidiary Reliance Petroleum Ltd. RIL sold 4.01 per cent of its stake in Reliance Petroleum. Excluding this, net profit for the fiscal increased by 28 per cent to Rs 15,261 crore in 2007-08.

The world’s largest truck manufacturer Daimler AG and the Munjals-owned Hero Group will be investing Rs 4,400 crore in the next five years through a joint-venture to develop and manufacture commercial vehicles in the country by 2010. Both the companies have signed a joint venture agreement in which the German partner will have 60 per cent stake and the rest will be with the Hero group in a company named Daimler Hero Motor Corporation.

Information Technology

TCS, India ’s largest software company, has reported Rs 5,026 crore profit after tax (PAT) for the fiscal ended March 2008, an increase of 19.3 per cent as against Rs 4,213 crore in 2006-07. The company has declared a dividend of Rs 14 per share, and a payout ratio of 27 per cent.

Telecom

San Diego-based, global patent holder for CDMA chip, Qualcomm Inc will be investing in Indian start-up companies offering innovative technologies and services that enhance wireless communications and semi-conductor ecosystems.

Canadian telecom equipment and technology solutions provider Nortel plans to exit Sasken Communications Technologies Ltd., a Bangalore-based telecom R&D outsourcing firm. Nortel holds about 11.31 per cent stake in Sasken, bought in April 2005 at $10 million.

Tata Teleservices (TTSL) has decided to proceed with the rollout of BlackBerry services, without waiting for the government permission. The company has told the government the delay was costing it “significant loss of business opportunity and recurring revenues”. Other operators like Bharti Airtel, Vodafone Essar, BPL and Reliance Communications currently offer BlackBerry services. Apparently, these companies never sought the government’s approval for launching the services.

The Department of Telecommunications (DoT) has announced that the mergers and acquisitions (M&As) of telecom licenses would not be allowed if the number of service providers would fall below four after the M&A. Both parties would also need prior approval of DoT for any M&A to take place. The revised guidelines for intra-services-area merger of cellular and UAS licenses are in line with the TRAI. 

*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.