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Current Economic Statistics and Review For the
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Theme
of the week:
Issue and Management of Currency by Reserve Bank of India 1.Introduction An important aspect of monetary developments during the past decade or so has been the phenomenal expansion in the currency holdings of the Indian population. The currency holdings with the public have grown at an average of 11-12 per cent per annum – fractionally higher than the growth of 10-11 per cent in GDP at current market prices. This phenomenon also reflects the sluggish nature of financial sophistication, diversification and deepening occurring in the Indian economy (RBI 2006). For instance, the share of bank deposits in the gross financial savings of the community has increased from 33.1 per cent in 1993-94 to 55.6 per cent in 2006-07. No doubt, increasing monetisation of the economy has taken place, but not beyond in terms of diversification of financial asset holdings beyond the non-monetary assets. Money supply as percentage of GDP at market prices has shot up from 46.7 per cent in 1990-91 to 84.9 per cent of GDP, implying that monetary assets play a major role in the economy’s transactions. No doubt, bank deposits form a major and growing part of money supply outstandings, but the share of currency in money supply, though slipped somewhat, still remains a significant proportion at over 14 per cent. More importantly, currency with the public as percentage of GDP has edged up from 9.3 per cent in 1990-91 to 12.0 per cent in 2007-08.
What
these macro data suggest is that propensity amongst the population to hold
currency seems to remain stubbornly high.
When such is the case, a series of institutional, organisational and
operational responsibilities are thrust on the Reserve Bank of Currency
Management is currently passing through an interesting phase. Building up of
the note printing capacity, reforms in operations of the issue department
including note distribution network, introduction of new security features
and shift towards higher denomination notes in circulation, are some of the
significant steps being undertaken in this sphere. Circulation of currency
in This
note, the first one in a series of proposed notes, mainly deals with the
statutory frame-work and the Reserve Bank of This
note will be followed up by three more notes. The second note will review
the RBI’s clean note policy and the measures adopted by it to implement
it. The third not is designed to
discuss RBI’s efforts in
curtailing the counterfeit notes and security measures adapted by the Bank.
And the last one will
deal with institutional matters and other issues concerning currency
management. 2.
Statutory Framework One
of the important central banking functions is the issue and management of
currency. The RBI derives its powers from the preample of the RBI Act 1934. Preample
of RBI Act 1934 enshrines thus: “
to regulate the issue of bank notes and the keeping of reserves with a view
to securing monetary stability in India and generally to operate the
currency and credit system of the country to its advantage”. The
RBI is the sole authority for the issue of currency in The
government issues one rupee coins/notes and subsidiary coins and they are
put into circulation, as said above, only through RBI. The Indian Coinage
Act, 1906 gives the statutory provisions governing the issue of coins. People
in
Between
1951 and 2008, the physical number as well as value of currency with the
public had witnessed a gigantic increase. Value of currency rose from Rs.
1405 crore to Rs. 5,67,746 crore, a four hundred and four fold increase in
57 years. The volume of notes increased from 2750 million pieces to 496138
million pieces between 1971 and 2007, at
an annual compounded growth rate of 15.5 per cent in the 36-year period.
Currency with the public grew at an annual compounded growth rate of
11.1 per cent. As against this, deposit with banks grew at annual compounded
growth of 15.5 per cent and the money supply grew at a rate of 13.9 per
cent, indicating substantial currency preferences of the public. Management
and distribution of such huge amounts of currency in this vast country
requires gigantic infrastructure arrangements, which RBI has put into place
over the years.
3.
Currencies and Coinage The
currency of Indian
Coinage Act, 1906, governs minting of rupee coin. This act was amended in
1969 and again in 1975.enabling the government to issue coins in
denomination upto Rs. 1000. Restricted issue of Mahatma Gandhi Centenary ten
rupee silver coin (1969), FAO commemorative ten rupee silver coin (1970) and
Independence Day silver jubilee commemorative ten rupee silver coins (1972)
were made by the government of Small
coins i.e., coins of value less than one rupee also issued under the
provisions of the Indian Coinage Act, 1906. Rupee
note was issued under the Currency Ordinance 1940 and for accounting purpose
the note was treated as rupee coin. One rupee notes and Coins are legal
tender in RBI
acts as agent of central government for issue, distribution or for
withdrawing and remitting the coins back to government. Government supply
coins on demand to the Bank and if government fails to supply the intended
coins Bank will be relieved from its obligation to supply coins to the
public. 4 Issue of Currency NotesAct
permits the issue of notes in the denominations of Rs.2,
5,10,20,50,100,500,1000, 5000 and 1000 or such other denominations not
exceeding Rs. 10,000 as the government may specify, on the recommendations
of central board of Bank. The design, form and material of the notes have to
be approved by central government after due considerations of the
recommendation made by the central board of the Bank. Notes are printed at
the government of Section
27 of the RBI act 1934 requires that the quality of note issue be maintained
by stipulation that the Bank shall not reissue notes, which are torn,
defaced or excessively soiled. Any person as a right cannot claim value of
any lost, stolen, imperfect or mutilated notes of government of 5.
Asset Backing for Note Issue Note
issued have a cent percent cover in approved assets. There is no ceiling on
the amount of notes that can be issued by Bank at any time. According to Sec
33 of the RBI Act, assets should be gold coin and bullion, foreign
securities, rupee coin, government of Initially
act prescribed a proportional system of 40 per cent of gold and foreign
securities and the remaining in rupee securities etc. And the value of gold
and foreign securities should not be less than Rs. 40 crore. The RBI (Amendment) Act 1956 changes this provision. According to new provision, the gold and foreign securities should be not less than Rs. 515 crore with gold amounting to Rs. 115 crore and foreign securities worth Rs. 400 crore. Amendment also provided for revaluation of gold stock and on revaluation value of gold held in issue department rose to Rs. 117.76 crore. With the need for foreign assets on the increase in the second five-year plan Act was again amended. As per the new provision of RBI (second amendment) Act 1957 value of foreign securities held as asset in issue department reduced to Rs. 200 crore. Further gold was revalued to Rs. 182.53 crore in 1969 in terms of Sec 26 of the Banking Laws (Amendment) Act 1968 which came into effect on February 1, 1969. Substantial change was introduced in gold revaluation in 1990. In
line with international practice, Sec 33(4) of RBI Act 1934 was amended in
October 1990 providing for valuation of gold at not exceeding international
market rate with effect from October 17, 1990. As a result gold is valued at
the end of each month at 90 per cent of months daily average A
limit on the value of gold, which can be held outside 6.
Issue Department Affairs
relating to note issue has been conducted by issue department in terms of
RBI Act 1934. This department is liable for aggregate value of currency
notes and maintaining of eligible assets of equivalent value. Issue
department will issue currency notes only in exchange for currency notes of
other denomination or against statutorily acceptable assets. Issue
department is also responsible for getting its periodical requirements of
notes/coins printed/minted from currency printing presses/mints,
distribution to the public and withdrawal of unserviceable notes from
public. Mechanism of putting currency into circulation and its withdrawal
from circulation i.e. expansion and contraction of currency, respectively is
effected through banking department. Illustration If
a scheduled bank wants to withdraw Rs. 1 crore from its deposits with RBI ,
transaction is handled by banking department, which gives currency in the
required denomination to bank by debiting the banks current account
maintained in deposit account department of RBI. For this purpose banking
department holds stocks of currency, which is replenished, as and when
necessary from issue department against transfer of eligible assets.
Likewise if a bank tenders cash to RBI for crediting to its account, cash is
received by banking department; if as a result the holding of currency in
banking department is in excess of normal requirements of department, the
surplus is sent to issue department in exchange for equivalent assets. In
respect of the exchange of currency notes for rupee coins and rupee coins
for notes and exchange of notes of one denomination for another, the issue
department deals directly with public and not through banking department. 7.
Distribution Arrangements The
core central banking function of note issue and currency management is
performed by the RBI, through its 18 offices, the sub office of the issue
department at Lucknow, a currency chest at Kochi and a wide network of 4,301
currency chests and 4,027 small coin depots (Table 2).
The
Reserve Bank has agency arrangements mainly with scheduled commercial banks
under which the currency chest facility is granted to them. A currency chest
branch is an extended arm of the issue department and carries out the same
functions of issue of fresh banknotes/coins, retrieval of soiled notes,
exchange of banknotes and coins including mutilated banknotes.
Total number of currency chest declined marginally due to the
implementation of the on-going policy to progressively convert and / or
close currency chest held by state treasuries. Currency operations at
sub-treasury currency chests are very nominal and they cause difficulties
for accounting not only for the Bank but also the concerned state
governments. In view of these factors, it has been decided to progressively
close the currency chests with the treasuries and sub-treasuries. The needs
of the state governments at these places are proposed to be met from the
currency chest with the public sector banks. The state bank of At
centers where Bank has its own office, the banking department through which
currency is issued draws on the local issue department for its requirement
of currency and the issue department provides exchange facilities.
Sub-office performs limited function of issue department and maintains
currency chest under issue department of the cycle in which it is
established, it maintains a small coin deposit also. Currency
requirements of other centers are met through currency chests, which are
receptacles in which stocks of new and reissuable notes are stored along
with Re coins, maintained by Bank with:
(i)
its agencies namely SBI and its associates and nationalized banks and some
private sector commercial banks. (ii)
Government treasuries and sub-treasuries
Currency
chests are fed by periodical remittances of new and reissuable notes and
balances in the chests are property of RBI. Currency chests cover all the
centers in the countries. State governments are responsible for the safety
of currency chests maintained with non-banking treasury and sub-treasury. Small
coin do not form part of currency chests balances and are stored in separate
deposits known as small coin deposits. Any withdrawal from or deposit into
depot is adjusted to the credit/debit of the account of government of 8.
Remittance Facilities RBI
has been operating remittance facilities scheme since 1940., with the object
of facilitating transfer of funds between different centers in the country
so as to secure most economical use of the available financial resources.
Centre and state governments, local bodies and commercial banks avail this
facility. Funds are transmitted through telegraphic transfer, mail transfer
or draft. Remittance is at par for governments. 9.
Denomination-wise Circulation of Notes The
value of currency with the public rose from Rs. 4,416 crore in end-March
1971 to Rs. 4,96,439 crore by
end-March 2007 or at a compounded annual average growth rate of 12.4 per
cent in 36 years. At the same time the volume of note increased from 4,939
million pieces in 1971 to 42,842 million pieces in 2007 – 8.7 fold
increase during the period. In recent period there is a shift from low
denomination notes to high denomination notes especially of denomination of
Rs. 100 and Rs. 500 . This shift can be partly attributed to the growing
network of automated teller machines (ATMs). Bank do not find it
commercially viable to stock the machines with lower denomination notes
because they run out sooner and increase both capital and operating costs.
Hence there was a demand for fresh notes of Rs. 500 and Rs. 100 to feed the
ATMs. The increasing demand of these notes have forced RBI to advise
commercial banks to use desktop sorters to salvage good quality notes to use
in their ATMs.
It
can be seen from able 4 that the share of low denomination notes ( Re 1, and
Rs 2 and 5) in volume terms came down from about 64 per cent in 1971 to 21
per cent in 2007 mainly due to coinaisation of these notes by RBI adopting
the recommendation of Nayak Committee . 10 Nayak Committee ReportCurrency
requirements have been increasing with the growth of economic activity.
Increase in volume of currency has been posing considerable problems in
regards to the currency management function of the central bank. But the
system and procedure of issue department have by and large continued to
remain the same since 1935. Hence it is considered to undertake a
comprehensive review of the existing system and procedures, technologies and
security arrangement employed in the Bank’s issue offices with a view to
evolve strategies to effectively meet the increasing demands of currency
managements. Hence,
a committee on currency management under the chairmanship of the then deputy
governor, Shri P R Nayak, was set up in December 1989 to go into the entire
gamut of issues and problems in the area of currency management. Committee
suggested following strategies. a)
Containment of currency volume by coinisation Notes
in denomination of Re 1, Rs.2 and Rs 5 were found to constitute about 57 per
cent of total number of notes in circulation but accounted for only about 7
per cent of the value of all notes in circulation. The average life of these
notes ranged from 6 months ( for Re 1 and 2) to 2 years (for Rs.5) . Meeting
the replacement of such large percentage of notes in circulation at short
intervals of 6 months to 2 years and their servicing had greatly added to
the workload and costs at the note printing presses and the RBI and currency
chests. Hence committee suggested coinaisation of Re.1, Rs.2 and Rs. 5. An
added advantage of coinisation of lower denomination of notes would be that
the spare capacity thus made available with the presses could be used for
printing higher denomination notes. Committee also suggested stream lining
procedures for handling and disribution of coins. Accordingly note printing
presses have discontinued printing of Rs. 2 and Rs. notes and only coins are
being issued from 1996. However, since 2001, Rs. 5 denomination notes have
been reintroduced. b)
Rationalization of Currency Movements The
Committee observed that the infrastructure available for handling the
ever-increasing quantity of notes was inadequate with the existing set up .
As a result there was considerable cross movements of currency notes across
the country and also return flow of notes to the Bank comprised of notes
still good for circulation. To rationalize distribution and collection of
currency, the committee recommended the setting up of
a net work of currency transit centres which would receive, store,
and redistribute fresh notes received from the presses to currency chests
and receive soiled notes dispatched from chests and retransmit them to the
Issue Department for their examination and eventual destruction. c)
Installation of Note Counting-Cum-Sorter Machines at Currency Chests Transport
of remittances by containers to avoid repeated handling of boxes,
installation of note counting-cum-sorting machines at currency chests to
ensure that return remittances to RBI are sorted properly into issuable and
non-issuable notes. d)
Installation of Modern Communication System Introduction
of computer and communication technologies to build up a proper management
system were some other measures the committee suggested to tackle the
logistics of the staggering volume of currency that would have to be handled
in the near future. e)
Introduction of New Method of Packing Committee
also recommended the introduction of a new system of packing of notes in
shrink-packed and heat-sealed polythene sheets aimed at reducing the time
consuming and repetitive stages of handling of notes by various agencies in
the journey of notes from presses to consumers. f)
Streamlining Procedure for Examination, Verification and Destruction of
Notes A
streamlined procedure for examination, verification and destruction of notes
in issue offices was also recommended. g)
Installation of Note Counting and Sorting Machine The
Committee also recommended installation of note counting and sorting
machines at issue offices and chests, coin dispensing machines at counters,
electromechanical systems for movement of remittance boxes in security areas
and high- speed modern shredders for destruction of notes in an
environment-friendly manner. 11.Recent
Developments i)
Computerization of Currency Management The
Reserve Bank has taken up the task of putting in place an integrated
computerized currency operations and management system (ICCOMS) in the issue
department of all regional offices and in the central office. The project
also includes computerization and networking of the currency chests with the
Reserve Bank’s offices to facilitate prompt, efficient and error-free
reporting and accounting of the currency chest transactions and seamless
flow of information between issue department and the central office in a
secured manner with proactive monitoring. ii)
ISO 9001:2000 Certification International
Organization for Standardization’s (ISO) certification ensures that
minimum international quality standards are adhered to in the systems and
procedures followed in the organization. RBI decided to opt for ISO
certification of currency management and banking services, as they are
highly service oriented in nature. Furthermore, currency management is one
of the most important functions of the Reserve Bank. Department of Currency
Management (DCM), Department of Government and Bank Accounts (DGBA), and
Issue/Banking Departments of Kolkatta and iii)
Customer Service The
Reserve Bank has been striving for a better customer services in matters
relating to issue of coins, acceptance of coins from the public and exchange
of soiled and mutilated notes. Efforts have been continued to provide timely
and efficient customer service not only at the Reserve Bank offices but also
at the bank branches. The Reserve Bank also revised the citizens’ charter
and placed the same on its website. The recommendations of the Committee on
Procedures and Performance Audit on Public Services (CPPAPS) have been
accepted for implementation. *
This note has been prepared by R.Krishnaswamy References:
1
GOI (1980), The Reserve Bank of 2
RBI (1980), RBI (Note Refund) Rules, 1975 (as amended up to 1980) 3
RBI (1983), RBI Functions and Working 4
RBI (2007), RBI Annual Reports 2006-07 and previous issues 5
RBI (2007), Flow of Funds Accounts of the Indian Economy 1994-95 to 2000-01,
RBI Bulletin, September
Highlights of Current Economic Scene AGRICULTURE As
per reports of Crop Weather Watch Group, by Agriculture Ministry,
the sown acreages under all major kharif crops like rice, oilseeds, pulses
and coarse cereals have increased so far during the current kharif season
2008-09, except jute, cotton and sugarcane, due to early onset of monsoon
and possibility of better
returns for the crops like paddy and coarse cereals owing tohike in their
prices at domestic as well as international levels and lower costs
incurred on irrigation. In case of cotton, sowings are completed in the
northwest India, with all the three major states, namely, Punjab ( 5.6
lakh hectares from 6.04 lakh hectares), Haryana (4.15 lakh hectares from
4.83 lakh hectares) and Rajasthan 1.36 lakh hectares from 3.50 lakh
hectares)reporting lower coverage. In Punjab, more area has come under
plantation of rice (from 8.11 to 10.48 lakh hectares), while farmers in
Rajasthan has significantly expanded planting of bajra (from 0.07 to 8.84
lakh hectares), maize (0.07 to 2.20 lakh hectares) and jowar (0.02 to 1.60
lakh hectares, groundnut (0.21 to 1.47 lakh hectares) and soybean (0.22 to
0.63 lakh hectares). Acreage under sugarcane has witnessed an almost 14
per cent of fall, with Uttar Pradesh drooping (from 21.2 to 17.4 lakh
hectares), Maharashtra (from 8.10 to 7 lakh hectares), Karnataka (2.19 to
1.63 lakh hectares), Gujarat (2.14 to 2.08 lakh hectares), Andhra Pradesh
(1.78 to 1.29 lakh hectares) and Haryana (1.4 to 1.25 lakh hectares) on
account of sugar mills running up huge payment arrears, growers have
chosen to divert cane area to other crops.
The
government of According
to the Soybean Processors Association, production of soybean is expected
to rise to 9.47 million tonnes from 7.15 million tonnes a year earlier, by
the year ending June 2007-08. The acreage planted under soybean would rise
by 20 per cent in the year beginning July 2008, from 8.85 million hectares
last year. Total
sugar output in Maharashtra during the sugar year 2008-09, is expected to
drop at 7 million tonnes, 23 per cent lower than last year’s 9.1 million
tonnes, while total area under sugarcane is expected to come down to
950,000 hectares from 1.2 million hectares last year, as most of the
farmers are shifting to soyabean, maize and cotton as inter-cropping is
proving to lucrative. Sugar mills in the state still owe payments to
farmers because of low realisation from sugar sales and prices are still
hovering around the cost of production, i.e.,
around Rs 14.50-15 per kg. As a result, the prices of all
sweeteners including sugar, jaggery and khandsari are likely to jump this
year. Maharashtra State Federation of Co-operative Sugar Factories has
estimated the total sugarcane output in the state to come down to 66.5
million tonnes from over 84 million tonnes last year. Contrary to it,
yield is expected to improve marginally from 63 tonnes per hectare during
last year to 70 tonnes per hectare in this year. Recovery is set to
decline marginally to 11.40 per cent from 11.44 per cent last year. As on
22 June 2008, sowings of cane in the state has declined by 30 per cent to
770,000 hectares, which is nearly half of the acreage during the same time
last year. This year the target for sowings has been set of as 1.8 million
hectares. The
Coimbatore Cotton Association (CCA) has urged the central government to
cap exports of raw cotton at 20 per cent of annual production. Further,
they have requested to remove 10 per cent custom duty on cotton imports
and one per cent export incentive given for cotton exporters. These
measures are expected to maintain steady supply of cotton for the domestic
textile industry by ensuring its competitiveness and to remove disparity
between import and export of cotton. According
to Spices Board, exports of spices from Exporters
of small cardamom earned more despite lower volume of shipment in 2007-08
over the previous fiscal year because of significant rise in the prices.
But, large cardamom exporters earned less due to lower shipment at a flat
price. Spice Board and exporters shows that in fiscal 2007-08, only 500
tonnes of small cardamom was exported against 650 tonnes in the previous
fiscal as the asking price rose to an average of Rs 495 per kg, up by Rs
151 per kg. Aided by the higher price, the overall earnings increased to
Rs 24.75 crore from Rs 22.36 crore, displaying a rise by 11 per cent,
despite shipments reducing by 23 per cent. The Spices Board had fixed a
target of Rs 26.25 crore to be earned from an export of 750 tonnes of
cardamom. The achievement was 67 per cent of the volume and 94 per cent of
the value. According
to Cashew Export Promotion Council of India (CEPCI) prices of cashew
kernel have risen by 56 per cent hitting an all-time high level in the
international market at US $ 3.60 per pound (W320 grade) in June 2008, as
compared to US $ 2.30 in the corresponding period last year. As a result,
exports of cashew kernel from the country is likely to rise by 50 per cent
in value terms touching Rs 3,500-crore in the current financial year.
In 2007-08, The
recent statistics published by the Directorate of Arecanut and Spices
Development (DASD), Karnataka still remains as the top producer of
arecanut in the country, followed by Kerala and west According
to Tobacco board, prices of tobacco have risen by 70 per cent since last
year. Exports of tobacco from India is likely to mount to a record of US $
600 million worth of Rs 2,559 crore in 2008-09, as a shortfall in global
output. Tobacco exports have risen to 32 per cent to US $ 503 million
worth Rs 503 crore by the year ending March 2008. The average price of
flue-cured virigina (FCV) has risen by more than 78 per cent to Rs 84.67
per kg from Rs 47.47 a year ago. Out of the total (FCV) production,
country usually exports 55 per cent and rest is consumed domestically.
However, rising exports and higher prices are hurting domestic cigarette
maker companies. The board has set a crop size of 260 million kg for
financial year 2009. It is expected that there would be slight increase in
acreage due to higher prices. Industry The
General Index stands at 268.3, which is 7.0% higher as compared to the
level in the month of April 2007. The revised annual growth for the period
April-March 2007-08 stands at 8.3% over the corresponding period of the
previous year. The
Indices of Industrial Production for the Mining, Manufacturing and
Electricity sectors for the month of April 2008 stand at 175.0, 287.0, and
218.2 respectively, with the corresponding growth rates of 8.6%, 7.5% and
1.4% as compared to April 2007. The
revised annual growth in the three sectors during April-March, 2007-08
over the corresponding period of 2006-07 has been 5.1%, 8.7% and 6.4%
respectively, which moved the overall growth in the General Index to 8.3%.
As
per 2-digit classification, as many as fourteen (14) out of the seventeen
(17) industry groups have shown positive growth during the month of April
2008 as compared to the corresponding month of the previous year. The
industry group ‘Beverages, Tobacco and Related Products’ have shown
the highest growth of 30.7%, followed by 15.4% in ‘Basic Chemicals &
Chemical Products (except products of Petroleum & Coal)’ and 11.4%
in ‘Transport Equipment and Parts’. On the other hand, the industry
group ‘Jute and Other Vegetables Fibre Textile (except Cotton)’ have
shown a negative growth of 9.9% followed by 6.3% in ‘Food Products’
and 2.0% in ‘Textile Products (including Wearing Apparel)’. As
per Use-based classification, the Sectoral growth rates in April 2008 over
April 2007 are 4.6% in Basic goods, 14.2% in Capital goods and 4.2% in
Intermediate goods. The Consumer durables and Consumer non-durables have
recorded growth of 5.5% and 9.8% respectively, with the overall growth in
Consumer goods being 8.9%. Infrastructure The
Index of Six core-infrastructure industries having a combined weight of
26.7 per cent in the Index of Industrial Production (IIP) with base
1993-94 stood at 232.3 (provisional) in April 2008 and registered a growth
of 3.6% (provisional) compared to a growth of 5.9 % in April 2007.
During April-March 2007-08, six core-infrastructure industries
registered a growth of 5.6% (provisional) as against 9.2% during the
corresponding period of the previous year. Crude
Oil production (weight of 4.17% in the IIP) registered a growth of 0.9% (provisional)
in April 2008 compared to a growth rate of 1.4%
in April 2007. The Crude Oil production registered a growth of 0.4%
(provisional) during April-March 2007-08 compared to 5.6% during the same
period of 2006-07. Petroleum
refinery production (weight
of 2.00% in the IIP) registered a growth of 4.3% (provisional) in
April 2008 compared to growth of 15.1% in
April 2007. The Petroleum refinery production registered
a growth of 6.5% (provisional) during April-March 2007-08 compared to
12.9% during the same period of 2006-07. Coal
production (weight of 3.2% in the IIP) registered a growth of 10.3% (provisional)
in April 2008 compared to growth rate 0.6% in April 2007. Coal production
grew by 6.0% (provisional) during
April-March 2007-08 compared to an increase of 5.9% during the same period
of 2006-07. Electricity
generation (weight of
10.17% in the IIP) registered a growth of 1.4% (provisional)
in April 2008 compared to a growth rate 8.7% in April 2007. Electricity generation
grew by 6.3% (provisional) during April-March
2007-08 compared to 7.3% during the same period of 2006-07. Cement
production (weight of
1.99% in the IIP) registered a growth of 6.9% (provisional)
in April 2008
compared to 5.8% in April 2007. Cement Production grew by 8.1% (provisional) during April-March 2007-08 compared to an increase of
9.1% during the same period of 2006-07. Finished
(carbon) Steel production (weight
of 5.13% in the IIP) registered a growth of 4.0%
(provisional) in April 2008 compared to
2.7% (estimated) in April 2007. Finished (carbon) Steel production grew
by 5.1% (provisional) during April-March 2007-08
compared to an increase of 13.1% during the same period of 2006-07. Inflation The
annual rate of inflation calculated on a point-to-point basis, rose by
11.42 per cent for the week ended June 14,2008 as compared 4.13 per cent
as on June 16,2007.Over the week the growth was 04 per cent . Rise
of 0.2 per cent in the index of Primary Articles group during the week can
be attributed to increase in prices of food and non-food articles as well
as metallic minerals. Increase
of 0.1 per cent were witnessed in the price index of
the major group Fuel, Power, Light and Lubricants mainly due to
higher prices of lubricants. The
rise in the price index of manufactured products by 0.6 per cent was
mainly due to increase in the prices of edible oils., yarns, footwear,
organic chemicals, and steel wire rope and wires. The
final WPI for all commodities had been revised upward from 227.5 to 228.9
for the week ended April 19,2008. As a result the rate of inflation
calculated on a point-to-point basis stood at 8.23 per cent as compared to
7.57 percent provisional. Banking In
one of the steepest measures in recent times, the RBI to curb inflation
has announced the twin moves of hiking the cash reserve ratio (CRR) and
the repo rate. The RBI has increased CRR by 50 bps to 8.75 per cent in two
stages: to 8.50 per cent from the fortnight beginning July 5, 2008 and to
8.75 per cent from the fortnight beginning July 19, 2008. Repo rate has
been hiked to 8.50 per cent with immediate effect. The CRR hike will suck
out around Rs 17,000 – 18,000 crore from the system. The move are
expected to trigger an across-the-board hike of about 50 basis points in
interest rates, with home loan rates also set to go up. National
Housing Bank (NHB) is planning to raise Rs 11,000 crore this fiscal to
meet loan demands. The housing finance regulator raised Rs 13,200 crore in
2006-07 and Rs 10,000 crore in 2007-08. NHB is planning to form a mortgage
guarantee firm in 3-4 months. The firm will be joint venture between the
regulator and United Guarantee Corp of the Financial
Sector Capital
Markets Primary
Market The
Yash Birla Group’s textile firm Birla Cotsyn is entered the capital
market to raise up to Rs 144.18 crore through an initial public offering
(IPO) to part-fund the setting up of a new integrated textile unit in
Maharashtra. The Mumbai-based firm is investing Rs 320 crore for bringing
together its existing facilities at Khamgaon, Ghatanji and Malkapur in On
June 25, 2008, the IPO of KSK Energy Ventures Ltd has been subscribed 1.5
times, on the last day of the issue, despite the turbulent market
conditions. The company entered the capital markets on June 23 with a
public issue of 34.61-million equity shares of Rs 10 each in the price
band of Rs 240-255 an equity share. The
grey market, which slowed down its activities due to slump in IPOs after
uncertainty in the secondary markets, has picked up pace with most of the
recently-announced IPOs like Sejal Architectural Glass, Birla Cotsyn, Somi
Conveyor which already demanding handsome premiums. According to Padam
Jain, director, investment banking and corporate finance, Anand Rathi
Securities, there are some section of investors who look up to premiums in
the grey markets and investment in the issue but there is no evidence that
the success of the issue depends upon these premiums. The IPO grey market
is totally unregulated and its presence by no way influences the actual
issue. Such activities have also sought attention of markets regulator
Securities and Exchange Board of India (SEBI) and off late, the regulator
is planning to take steps to curb the unregulated market. Secondary
Market The
domestic stock markets posted their sixth weekly decline, the longest
losing streak since April 2001, on Friday, June 27, 2008, on concerns that
higher interest rates will crimp profit as energy costs and inflation
surged. The Bombay Stock Exchange (BSE) Sensex closed at 13,802 points,
down by 769 points. The BSE Sensex dropped 5.3 per cent this week, its
worst since April 4. The National Stock Exchange (NSE) Nifty closed at
4,136 points, down 4.85 per cent during the week. During
the week under review, all the sectoral indices of BSE have under
performed. The BSE Bankex has been down 345.64 points, or 5.34 per cent,
and the BSE Realty index has been down 227.18 points, or 4.45 per cent.
Fears of further monetary tightening by the Reserve Bank of India (RBI),
following the surge in inflation to a 13-year high of 11.42 per cent,
weighed on markets sentiment as bank and realty stocks plunged. The
surging inflation and crude oil prices battered several interest
rate-sensitive sectoral indices of BSE, like- Bankex, Auto, Power, Realty
and Public Sector Undertakings (PSU) - forcing them to close at their
52-week low on Friday. The stocks of about 15 per cent of the actively
traded 3,300 companies have hit a 52-week low on the BSE in the past
couple of days. The banking sector underperformed the Sensex during the
week after the RBI increased the repo rate and the cash reserve ratio (CRR)
by 50 basis points each, on June 24. The BSE- Bankex fell by 5.7 per cent
per cent in just three trading days, while the BSE Sensex declined by 2.2
per cent. Similarly, the interest-sensitive sectors were also hammered on
the bourses, with realty and auto stocks losing over 4 per cent each. The
BSE Healthcare index also fell in line with the oter stocks. The index had
declined just 4 per cent in comparison with BSE Sensex that fell more than
20 per cent in the past two months. IT stocks are likely to remain tepid
in line with the broad markets as investors await quarterly earnings of
companiesand reports of further write-off of bad debt by Citi, and fears
of a takeover of Swiss bank UBS which have once again heightened worries
over IT companies' earnings. Foreign
institutional investors (FIIs) have shown tremendous interest in investing
in Indian debt paper, including government securities (G-Secs) and
corporate debt. The enhanced debt investment limits that were notified and
auctioned by Sebi on June 16,2008, on a first-come-first-serve basis, has
created a wait list of FIIs. The limits were enhanced after a review of
the external commercial borrowing (ECB) policy by the ministry of finance Government
Securities Market Primary
Market On
June 25, 2008, Reserve Bank of India (RBI) auctioned 91-day and 182-day
T-bills for the notified amounts of Rs.500 crore each. The cut-off yields
for 91-day and 182-day T-bills were 8.73 per cent and 9.16 per cent,
respectively. Three
State Governments auctioned 10-year paper maturing in 2018, through an
yield based auction using multiple price auction method on June 27, 2008,
for the notified amounts of Rs 2300 crore. The cut-off yields for the
securities of Secondary
Market Inter
bank call rates ranged between 7.71-8.84 per cent during the week. The
weighted average call rates increased until the middle of the week but
declined there after. Bond yields continued to hurtle forward tracing
soaring inflation and galloping global oil prices. RBI announced the twin
moves on June 24, 2008, by hiking the CRR and repo rate by 50 basis points
each, to tackle inflation, which rose to 11.05 per cent for the weekended
June 7, 2008. The risks of escalated intervention also heightened, after
the US Federal Reserve Board’s decision to hold the key Federal Funds
rate at 2 per cent. Trade
volumes droped to Rs 3,600 crore during the week, down from Rs 5,500 crore
from previous week. Most trades were in oil bonds, which accounted for
almost Rs 2,700 crore of the volume. The low interest in government
securities trade has also largely on account of the first quarter results.
The tight liquidity situation pushed up the ten-year yield to maturity (YTM)
to 8.71 per cent on a weighted average basis, up from the previous
weekend’s 8.53 per cent. Similarly, average CBLO volumes during the week
decreased by around 29 per cent as compared to the previous week. The
weighted average rates moved higher during the week, with the weighted
average overnight rates at 8.18 per cent as against 7.87 per cent during
the previous week Derivatives On
the derivatives markets, almost all stocks futures traded on the National
Stock Exchange either created fresh short positions or unwinding of long
positions on June 27. The bearish momentum of the past two months
translated into a settlement characterised by very high volumes and high
volatility. Nifty futures began the week on a frail note and ended further
down. Markets gave in to the heavy selling pressure despite there being
some show of resilience in the middle of the week. Overall, the Nifty
future tumbled 6 per cent to close the week at 4078.55 points. The
discount between the July futures and spot widened to 58 points,
indicating that fresh short positions could have been created during the
week. Even the rollover of open interest from June to July series stood
below average at 63 per cent. The Nifty July, August and September
contracts were settled at 4075, 4068 and 4067 respectively while the spot
index closed at 4136 on Friday. The situation is similar in the BankNifty,
the CNXIT and the Midcaps-50 though only the BankNifty has serious
liquidity at this instant. The BankNifty incidentally broke a key support
during the week. The VIX has
been signalling extreme disquiet, hitting intra-day of over 50 and closing
at near-record levels of 32+. Implied
volatilities (IV) for puts remained firm at about 33 per cent while calls
IV has been at about 30 per cent. The relative firmness in puts IV
suggests a negative sentiment as traders are actively trading on puts. Volume
wide put-call ratios (PCR), decreased to 1.03 (1.38) but open interest PCR
improved to 1.5 (1.37). This indicates puts were added at a time despite
the market falling sharply during the week. On Friday the bearish signal
has been emitted by the Nifty PCR, that the ratios were below 1 and the
July PCR is also below 1 in terms of open interest (OI) although the far
and mid contracts have been closer to normal at 1.4 or so. Over 45 per
cent of all Nifty put OI is nested in the 4000p and the 4100p contracts.
The 4000p is priced at 150-plus, but there is no liquidity below 3950.
Similarly, the call option chain has just 7.5 per cent OI in the money
(4100c or below) and 75 per cent of OI is clustered between 4200 and 4600
contracts. Bond
Market During
the week under review, Housing Development Finance Corp (HDFC) Ltd tapped
the market by issuance of non-convertible debentures (NCD) to mobilise Rs
200 crore by offering 10.5 per cent for 10 years. The NCD has been rated
AAA, by Crisil and Icra. According
to RBI, the external commercial borrowings (ECB) and foreign currency
convertible bonds (FCCB) raised by domestic companies has fallen
drastically to $1.16 buillion in April and to $1.28 bullion in May 2008 as
against $4.5 bullion in March 2008. On June 27, the RBI released the
latest figures on ECBs and FCCBs for April and May 2008. In February,
local corporates raised $862.12 mln as compared to $1.89 bln in January
2008. Last year, due to the ongoing turmoil in the international markets
and credit drying up, national companies were seen coming back to their
origin to raise funds. There is an increased amount of domestic activity,
as internal corporates are looking at raising capital through domestic
bonds and debentures. In a bid to help domestic corporates to raise money from the overseas market, the RBI plans to come out with its guidelines on Foreign Currency Exchangeable bonds (FCEB) within a month. FCEBs, issued by an Indian company, are subscribed by non-residents and exchangeable into equity shares of another Indian company, which is termed as the offered company. These instruments are similar to FCCBs which allow Indian corporates to raise money from abroad by issuing bonds. However, incase of FCCBs, the bonds are converted into equity shares of the issuing company while incase of FCEBs, the bonds are converted into shares of a group company of the issuer. This essentially means that, incase of a FCCB, the company issuing the bonds gets the shares during the time of conversion, while in the case of FCEBs, the bonds can be converted into shares and transferred to the group company of the issuer. Foreign
Exchange Market According
to International Monetary Fund (IMF), rupee is the only currency to
decline this year among the BRIC ( During
the week under review, rupee appreciated to Rs 42.79, from the previous
week’s Rs 42.98 despite $625 million outflows by FIIs. Three-day forward
premia topped 9 per cent during the weekend, up from 7.26 per cent from
the previous weekend. Long forwards also hardened as oil companies and
importers took forward cover in view of the rupee’s appreciation.
Forward premia for one, three, six and 12 months firmed to 5.89 per cent
(5.58), 8.60 per cent, (3.91 per cent), 5.38 per cent (3.40 per cent) and
3.69 per cent (2.79 per cent) respectively. Commodities
Futures derivatives The
implementation of the commodities transaction tax (CTT) will be delayed to
the end of the year or even next year, due to the spiralling inflation and
its political fallout. The tax, which imposed in this year's Budget, is
yet to be notified, despite the Finance Bill being approved by Parliament
on April 29. In order to keep food prices under check, the Centre has gone
full stream ahead to procure foodgrain from farmers to fill its silos. By
September or October this year, the government will have a better
assessment of the current year's kharif harvest and the decision will be
taken only after that. With the delay, the exchequer stands to lose a
significant part of the Rs 5,000-crore collection estimated from this new
direct tax in 2008-09. With no clarity on its implementation, the Central
Board of Direct Taxes (CBDT) has made no official projection for the
expected collections from this proposed impost. The
turnover of the three national commodity exchanges and 19 regional bourses
increased by more than 27 per cent, in spite of the government’s
suspension of futures trading in eight agricultural commodities. The
cumulative turnover recorded Rs 1,91,663 crore during the first fortnight
of June 2008 up from Rs 1,50,796 crore recorded same period during the
last year. According to the data released by the market regulator Forward
Markets Commission (FMC), the total volume of trade during the April 1 and
June 14 also rose by more than 16 per cent compared to previous year. The
cumulative volume, during the current financial year, went up to Rs
8,93,438 lakh against Rs 76,606 lakh recorded previous year. During the
first fortnight period, the turnover of the Multi Commodity Exchange (MCX)
recorded Rs 1,68,299 crore against a turnover of Rs 20,638 crore National
Commodity & Derivatives Exchange (NCDEX). The other national level
exchange Ahmedabad-based National Multi-Commodity Exchange of India (NMCE)
registered a turnover of Rs 1,009 crore. According to FMC, out of 22
traded commodities at MCX, gold, sliver and crude oil recorded the highest
volume. The August 2008 contract in gold quoted at its highest at Rs
12,628 per 10 gm on June 9 and the total value of trade in all gold
contracts has been Rs 58,364 crore. The silver turnover stood at Rs 30,705
crore and crude oil recorded Rs 58,197 crore during first fortnight of
June. At NCDEX, out 27 commodities traded, R/M seed, turmeric and guar
seed had the higher volumes of trade. While at NMCE, sacking, mustard and
Isabgul seeds witnessed higher volumes. During the period, the MCX has
given permission in new contracts on maize, nickel and platinum, while has
given new contact for coconut oil and Merrut Agro Commodities Exchange has
given contact for jaggery (gur). Oil
leap to a new record high above $142 a barrel on June 27, 2008, as
tumbling global stock markets helped to trigger a wider commodities rally.
Gold rallied to its highest level in a month as oil’s rise, a weak
dollar and tumbling world stock markets boosted the metal to pick up. On
June 27,2008, the country's first power exchange, Indian Energy Exchange (IEX),
jointly promoted by Financial Technologies and PTC India, commenced
operations in The
recent flow of funds into the commodity sector has sparked a debate about
the sky-rocketing prices of commodities being the main reason for rising
global inflation. According to a Merrill Lynch report, the fundamentals of
supply and demand have been disrupted, resulting in a price hike of
essential commodities including grains and energy. There is no link that
establishes speculation has contributed to the exorbitant rise in
commodity prices.
The
public sector steelmaker Steel Authority of India Ltd (SAIL) has hiked
prices for long-term contracts, putting pressure on the spot market, even
as Prime Minister Manmohan Singh has asked them to hold prices for the
first quarter of the current financial year. Prices of most steel products
like cold rolled coils, pig iron, pencil ingots, wire rods, plates and
others have been moving up in June after a period of stability in May.
After SAIL increased the prices of steel for future contracts, spot
markets have also started quoting higher. Corporate
Sector Tata
Power is investing Rs 50,000 crore to raise generation capacity from the
current 2,368 MW to 12,861 MW by 2013. The company’s net profit for the
ended March 2008 increased by 25 per cent at Rs 870 crore as against Rs
697 crore for the previous year. The
Indian Hotels has posted net profit of Rs 355 crore for the year ended
March 31, 2008 as compared to Rs 370 crore in the previous year. GMR
Infrastructure has acquired 50 per cent stake in InterGen NV for $1.1
billion. InterGen has power plants across the External
Sector Exports
during April 2008 were US $ 14400 million as against US $ 10953 million
registering a growth of 31.5 per cent. As against this Imports was valued
at US $ 24274 million as against US$ 17769 million recording a growth of
36.6 per cent. In
rupee terms, while export increased by 24.8 per cent , import flared up by
29.7 per cent. As
a result trade deficit was estimated at US $ 9874 in April 2008 million
higher than the deficit at US $ 6817 million during April 2007 Oil
imports were estimated during April 2008 at US$ 8029 million
and non-oil imports at US $ 16245 million was 46.2 per cent and
32.3 per cent higher than that in last year Telecom One
of the early starters in the GSM mobile space but restricted to regional
operations, the B K Modi-controlled Spice Communications was acquired by
Idea Cellular for Rs 2,716 crore. The acquisition price is almost Rs 665
crore more than the market price. Idea acquires B K Modi’s 40.8 per cent
stake at Rs 77.30 per share for Rs 2,716 crore. The swap ratio has been
fixed at 49 Idea shares for every 100 Spice shares.
*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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