Current Economic Statistics and Review For the Week Ended December 5

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Current Economic Statistics and Review For the Week
Ended April 4, 2009 (14^th Weekly Report of 2009)

Theme of the week:

Social Sector Development in India*

MDGs as the Backdrop

It has been quite some time now since when the academic community realised the importance of the social sector development in the south-east Asian economies in general and in the Chinese economy in particular; this contrasts with the inadequate development of the social sector in the south Asian economies (such as India , Pakistan , Bangladesh and Nepal ) which have uniformly constricted the latter’s growth performance. After the south-east Asian miracle became known and their studies got disseminated, there have been concerted attempts to improve the social sectors in India and other south Asian countries.

At the international level, one important development which took place in the early part of the current century was the establishment of millennium development goals (MDGs) binding countries to eradicate poverty and hunger and social deprivations (UN Millennium Deceleration 2000). Analysing the root causes of failed development in a number of countries, a package of eight goals, 18 targets and 48 indicators in the form of millennium development goals and action programmes were designed (Box 1). An overwhelming proportion of these action programmes related to promoting human development in as many as 137 countries, but, of the 137 countries, 59 countries were in dire straight identified as top priority (31 countries) and high priority (28 countries). The aim was to identify countries where urgent action was needed to meet the goals (top priority countries) and the countries where the situation was less desperate but still demanded significant improvements in progress [high priority countries (UNDP 2003)]. These two sets of countries that combined low human development and exhibited poor performance in the achievement of the defined goals. Finally, there are 78 other countries for which there are data, which indicate that they are progressing well towards the goals set but they nurture “deep pockets of poor people” who are left behind (UNDP 2003). For such countries, national averages can be misleading. Deep pockets of poverty and social deprivation exist. Such countries generally portray in the public eye an image of progressing well but they leave behind large groups and areas with deeply deprived state. Such disparities are agalore: gender inequality between men and women; between SCs and STs on the one hand and other communities, on the other; and between minorities and the others; and between rural and urban communities. To address significant disparities between such groups, we require to look beyond the national averages (UNDP 2003). In an incisive study, UN’s Human Development Report 2003 (p.3) singles out China for pointing out such inter-group and inter-regional differences:

“Many countries with national averages indicating adequate progress towards the Goals by the target dates have deep pockets of entrenched poverty. China ’s spectacular achievement of lifting 150 million people out of income poverty in the 1990s was concentrated in coastal regions. Elsewhere, deep pockets of poverty persist. In some inland regions economic progress has been much slower than in the rest of the country”

In the case of India , the disparities are much more widespread. To cite one set of data on the inter-district disparities in human development, the Eleventh Five Year Plan 2007-2012 has reproduced results of human development indices (HDIs) constructed by individual states in respect of their districts. As per the Plan document, 18 states have constructed HDIs in respect of their 421 districts. The relevant results are reproduced in Table 1. The plan documents points out that in some states with high average level of development, there is a wide variation in the HDI of individual districts. Citing two extreme examples of Maharashtra and Kerala, the Eleventh Plan document writes thus:

“It is clear from Table 1 that in some States with high average level of development, there is a wide variation in the HDI of individual districts. For example, Maharashtra has calculated HDI of 1.00 for Mumbai city. However, considering this as an outlier, the next highest HDI in Maharashtra is 0.82 for Thane district. The lowest HDI for any district is only 0.210 (Gadchiroli). Even after removing the effect of the district with HDI of 1.0, the coefficient of variation for Maharashtra is 30.50% which remains the highest in the country. This shows the extent of intra-State disparity. On the contrary, all districts in Kerala lie between a range of 0.749 and 0.801, and with a coefficient of variation of only 2.37%, thereby denoting very limited intra-district disparity” (p.149).

Table 1: Disparities in State HDI
S. No	State	No. of Districts	State HDI	Highest HDI	Lowest HDI	Coefficient of
		in the State		for a District	for a District	Variation %
				in the State	in the State
1.	Arunachal Pradesh	17	0.515	0.660	0.362	18.36
2.	Assam	23	0.407	0.650	0.214	27.99
3.	Chhattisgarh	16	0.471	0.625	0.264	21.16
4.	Gujarat	25	0.479	0.582	0.309	16.14
5.	Himachal Pradesh	12	0.433	0.534	0.390	11.14
6.	Karnataka	27	0.633	0.753	0.547	7.62
7.	Kerala	14	0.773	0.801	0.749	2.37
8.	Madhya Pradesh	45	0.394	0.694	0.372	11.37
9.	Maharashtra	34	0.580	1.000	0.210	36.55
10.	Nagaland	8	0.620	0.733	0.450	15.89
11.	Orissa	30	0.404	0.736	0.389	16.94
12.	Punjab	17	0.537	0.761	0.633	4.93
13.	Rajasthan	32	0.424	0.656	0.456	8.88
14.	Sikkim	4	0.454	0.501	0.391	8.92
15.	Tamil Nadu	29	0.657	0.757	0.584	5.97
16.	Uttar Pradesh	70	0.532	0.710	0.366	11.59
17.	West Bengal	18	0.610	0.780	0.440	16.68
Source: Planning Commission, Government of India (2008): Eleventh Five Year Plan 2007-2012 Vol. I, Inclusive Growth, State Human Development Reports (SHDRs), p.150

Reverting to the eight goals, 18 targets and 48 indicators which constitute the MDGs and which are designed to address many of the problems of human deprivations, to quote the UN Human Development Report 2003, they are intended to “address many of the most enduring failures of human development” (p.27). And in doing so, goals, targets and indicators have overwhelmingly concerned top priority and high priority countries which are primarily located in Sub-Saharan Africa, as shown in Table 2.

Thus, impliedly MDG targets are more relevant to the national level indicators for such poorer countries as in Sub-Saharan Africa. In the case of bigger countries like India , the focus in achieving targets should be on poorer regions and states where the poverty levels and social deprivations are much larger. Therefore, the MDG targets at the national level will have to be much steeper so that the achievements are better spread regionally. The following section provides an account of India ’s performance against the backdrop of millennium development goals (MDGs).

Table 2: Continent-wise Distribution of Countries (MDGs)
	Top Priority Countries	High Priority Countries
Sub-Saharan Africa	25	13
East Asia & the Pacific	0	4
South Asia	1	1
Arab States	3	3
Latin America & the Caribbean	1	3
Eastern Europe & the CIS	1	4
Source: Human Development Report 2003, p.44

India’s Social Sector Performance

The profile of disparities is self-evident in the narrowest estimates of poverty. The four BIMARU states and Maharashtra together account of 55% of the total number of the poor in 2004-05. The number of the poor in rural areas accounted for 73.3% (220.9 million) while in urban areas, it was 26.7% (80.8 million) though the urban share has been increasing of late due to rural migration; the total number of migrant workers in 1999-2000 was 102.7 million. Poverty is increasingly getting concentrated in agricultural labour and artisanal households in rural areas and amongst casual labour households in urban areas. More serious is the concentration of poverty amongst SCs, STs and backward communities who have accounted for 80% of the rural poor in 2004-05.

Social Deprivations

There is now increasing realisation that measuring of poverty based only on conventional nutritional norms is not enough; instead it is necessary to take into account the minimum aspirations of the poor in terms of improved quality of life based on their basic needs such as improved nutrition, drinking water availability, shelter, hygiene, clothing and health and educational facilities.

Table 3: Poverty Ratio Using a Holistic Poverty Line
Area	Percentage
Rural	84.6
Urban	42.4
Weighted average	68.8
Note: Calculated by Guruswamy and Abraham (2006)

A detailed work done in this manner by Guruswamy and Abraham (2006) has placed the poverty level at Rs 840 per capita per month as against the Planning Commission norm of Rs 368 for rural areas and Rs 559 for urban areas probably for 2005-06. Based on this exercise, the authors have said that “nearly 69% of India’s total population is below the poverty line, which is over two and a half times the present official poverty rate of 26.1%” (p.2539). For rural India , the situation is much worse at over 84% (against 28% of official estimates), while it is at 42 % for urban poverty (against the official figure of 27% (Table 3). These appear plausible because the World Bank’s norm of $ 2.0 per day places the poverty level for India at 78.4% for 1999 and 75.6% percent for 2005 (Chen and Ravallion 2008).

Social Sector Development

“The biggest barrier is, I believe, India ’s social backwardness in education, healthcare, and land reforms. In each of which we remain well behind where China or East Asia was when they went in for rapid integration with the world economy”. So said Professor Amartya Sen (1994).

Detailed reviews of physical achievements under social services (essentially health and education) suggest that the progress has been slow, much slower than targeted, and what is more, all programmes have suffered from inadequacy in quality and equity. One of the important factors has been the failure to provide the targeted amounts of budgetary allocations to primary social sectors, education and health. With a view to honouring the country’s commitments under the National Common Minimum Programme (NCMP) (MDGs) and ‘Education for all’, there was the target of 6% of GDP as education expenditure to be achieved by 2008-09; likewise, the expenditure on health was to reach 3% of GDP. Instead, as shown in Table 4, there has hardly been any increase in this expenditure to GDP ratio in respect of education since 1990-91 and some marginal increase in respect of health.

Table 4 : Trends in Central and State Governments Social Sector Expenditure
										Rs. crore
	2007-08	20006-07	2005-06	2004-05	2003-04	2002-03	2001-02	2000-01	1995-96	1990-91
	BE	RE	Actual	Actual	Actual	Actual	Actual	Actual	Actual	Actual
Total Expenditure	1309897	1148824	959355	859855	786312	695203	652968	595595	303586	163673
Expenditure on social sector	294412	256521	203995	172812	153454	141740	137843	131805	65465	33254
Education	133284	119199	96365	84111	75607	71298	68071	67036	35289	17093
Health	65158	56378	45428	37535	33504	30184	28578	27960	10179	5317
Others	95970	80944	62202	51166	44343	40258	41194	36809	19997	10844
As percentage of GDP	4723400	4129174	3576743	3149407	2754561	2454561	2278952	2102314	1191813	569624
Total Expenditure	27.73	27.82	26.82	27.30	28.55	28.32	28.65	28.33	25.47	28.73
Expenditure on social sector	6.23	6.21	5.70	5.49	5.57	5.77	6.05	6.27	5.49	5.84
Education	2.82	2.89	2.69	2.67	2.74	2.90	2.99	3.19	2.96	3.00
Health	1.38	1.37	1.27	1.19	1.22	1.23	1.25	1.33	0.85	0.93
Others	2.03	1.96	1.74	1.62	1.61	1.64	1.81	1.75	1.68	1.90
As percentage of Total Expenditure
Expenditure on social sector	22.48	22.33	21.26	20.10	19.52	20.39	21.11	22.13	21.56	20.32
Education	10.18	10.38	10.04	9.78	9.62	10.26	10.42	11.26	11.62	10.44
Health	4.97	4.91	4.74	4.37	4.26	4.34	4.38	4.69	3.35	3.25
Others	7.33	7.05	6.48	5.95	5.64	5.79	6.31	6.18	6.59	6.63
As percentage of Social Expenditure
Education	45.27	46.47	47.24	48.67	49.27	50.30	49.38	50.86	53.91	51.40
Health	22.13	21.98	22.27	21.72	21.83	21.30	20.73	21.21	15.55	15.99
Others	32.60	31.55	30.49	29.61	28.90	28.40	29.88	27.93	30.55	32.61
BE : Budget Estimates RE: Revised Estimates
Source: GOI (2008), Economic Survey 2007-08 and previous issues

The Eleventh Five Year Plan (pp.4-61) document lists various aspects of the deficiencies in the delivery of educational and health services. To cite a few examples:

(i) The fact that children drop out of school early or fail to acquire basic literacy and numeracy skills partially reflects poor quality of education. The average school attendance was around 70% of the enrolment in 2004– 05.

(ii) Teacher attendance, ability, and motivation appear to be the weakest links of elementary education programmes. Lack of universal pre-schooling (Early Childhood Care and Education, ECCE) and consequent poor vocabulary and poor conceptual development of mind makes even enrolled children less participative in the class, even for learning by rote.

(iii) However, the dropout rate at the elementary level (classes I–VIII) has remained very high at 50.8% [Tables 5 and 6]; it is much higher at 57-66% for SCs and STs.

(iv) There are glaring inter-state and intra-state variations in enrolment, dropouts, and access to secondary and higher secondary schools

Table 5: Secondary Education -Enrolment and Dropout, 2004-05
No.	Enrolment (in crore)	Boys	Girls	Total
1	Secondary (IX–X)	1.42	1.01	2.43
		(57.39)	(45.28)	(51.65)
2	Hr Secondary (XI–XII)	0.74	0.53	1.27
		(30.82)	(24.46)	(27.82)
3	Secondary & Hr Sec. (IX-XII)	2.16	1.54	3.70
		(44.26)	(35.05)	(39.91)
4	Dropout (%) Rates (I–X)	60.41	63.88	61.92
Note: Figures in the parenthesis are gross enrolment ratio (GER) Source: Selected Educational Statistics (2004-05), MHRD Planning Commission, Government of India (2008), Eleventh Five Year Plan 2007-2012, Vol. II: Social Sector, p.5 and 15

Table 6: Dropout Rates by Social Composition, 2004–05
Categories	Primary (I–V)			Elementary (I–VIII)
	Boys	Girls	Total	Boys	Girls	Total
SCs	32.7	36.1	34.2	55.2	60.0	57.3
STs	42.6	42.0	42.3	65.0	67.1	65.9
All	31.8	25.4	29.0	50.5	51.3	50.8
Source: Selected Educational Statistics, 2004–05. [See Table 8(A)]

(v) The comparative picture with regard to health indicators such as life expectancy, TFR, IMR, and MMR points that countries placed in almost similar situations such as Indonesia , Sri Lanka , and China have performed much better than India

(vi) As for maternal mortality ratio (MMR), there has been a substantial decline during the seven-year period of 1997–2003. However, the pace of decline is insufficient. At the present rate of decline, it will be difficult to achieve the goal of 100 per one lakh live births by 2012, the end of the eleventh plan (Table 7).

(vii) Likewise in infant mortality rate (IMR); the rate has declined from 72 per 1000 live births in 1997 to 58 in 2005 and this pace of decline is said to be insufficient to bring it down to 30 by 2012.

(viii) Public health care system in rural areas in many states and regions is in shambles. Extreme inequalities and disparities persist both in terms of access to health care as well as health outcomes. This large disparity across India places the burden on the poor, especially women, scheduled castes, and tribes. Inequity is also reflected in the availability of public resources between the advanced and less developed states.

(viii) Thus, even though there is a concentration of health care facilities in urban areas, the urban poor lack access; initiatives in the country to date in providing such access have been limited and fragmented.

Progress Under MDGs

In recent years, the social sector development has become a live subject in the context of the millennium development goals (MDGs). These goals are apparently too meagre for India , for they have been prescribed essentially keeping in view the needs and potentialities of poorer countries in Africa and south Asia . Even so, the progress made by India are so slow that as per experts in many cases of social development, we will find it extremely difficult to attain even the MDGs. Some of these targets, as presented in Table 9, were achieved by many south Asian countries long ago (Table 8).

Table 7: Progress Towards Achieving MDGs in India
	Indicator	Year	Value	Year	Value	MDG target Value (2015)
1	Proportion of population below poverty line (%)	1990	37.5	1999-2000	26.1	18.75
2	Undernourished people as % of total population	1990	62.2	1999-2000	53	31.1
3	Proportion of under-nourished children	1990	54.8	1998	47	27.4
4	Literacy rate of 15-24 year olds	1990	64.3	2001	73.3	100
5	Ratio of girls to boys in primary education	1990-91	0.71	2000-01	0.78	1
6	Ratio of girls to boys in secondary education	1990-91	0.49	2000-01	0.63	1
7	Under five mortality rate (per 1000 live births)	1988-92	125	1998-2002	98	41
8	Infant mortality rate (per 1000 live births)	1990	80	2003	60	27
				2005	56(UNDP)
9	Maternal mortality rate (per 100,000 live births)	1991	437	1998	407	109
				2005	450 (UNDP)
10	Population with sustainable access	1991	55.54	2005	90	80.5
	to an improved water source, rural (%)
11	Population with sustainable access	1991	81.38	2001	82.22	94
	to an improved water source, urban(%)
12	Population with access to sanitation urban (%)	1991	47	2001	63	72
13	Population with access to sanitation rural (%)	1991	9.48	2005	32.36	72
14	Deaths due to malaria per 100,000	1994	0.13	2004	0.09	-
15	Deaths due to TB per 100,000	1999	56	2003	33	-
16	Deaths due to HIV/AIDS	2000	471	2004	1114	-
CSO (2005): Millennium Development Goals India Country Report 2005, December

Table 8: Some Health Parameters: India and its Neighbours
Country	Life expectancy at birth (years)		Under-five mortality rate (per 1000 live births)		Infant Mortality Rate (per 1000 live births)		Maternal mortality Rate (per 1,00,000 live births)
	1990	2000-2005	1990	2005	1990	2005	1990	2005
China	70.1	72 62.9	42	27	30	23	95	45
India	59.1	72 62.9	142	74	94	56	570	450
Nepal	52.2	61.3	189	74	123	56	1500	830
Pakistan	57.7	63.6	158	99	104	79	340	320
Sri Lanka	70.9	70.8	35	14	26	12	140	58
Bangladesh	51.8	62	180	73	114	54	850	570
South Asia	na	62.9	na	80	na	60	551/(512 exc.India)	na
NA: Not available Figures shown for India are at variance with the official figures of the Office of Registrar General of India (RGI) for Maternal Mortality Rate and Infant Mortality Rate. Data shown in the table are as per the methodology and adjustment made by UNDP. Source: UNDP, Human Development Report, 2007-08 and other Various Reports

Box 1 : Millennium Development Goals and Targets

Goal 1: Eradicate extreme poverty and hunger

Target 1: Halve, between 1990 and 2015, the proportion of people whose income is less than

$1 a day

Target 2: Halve, between 1990 and 2015, the proportion of people who suffer from hunger

Goal 2: Achieve universal primary education

Target 3: Ensure that, by 2015, children everywhere, boys and girls alike, will be able to complete a full course of primary schooling

Goal 3: Promote gender equality and empower women

Target 4: Eliminate gender disparity in primary and secondary education preferably by 2005 and in all levels of education no later than 2015

Goal 4: Reduce child mortality

Target 5: Reduce by two-thirds, between 1990 and 2015, the under-five mortality rate

Goal 5: Improve maternal health

Target 6: Reduce by three-quarters, between 1990 and 2015, the maternal mortality ratio

Goal 6: Combat HIV/AIDS, malaria and other diseases

Target 7: Have halted by 2015 and begun to reverse the spread of HIV/AIDS

Target 8: Have halted by 2015 and begun to reverse the incidence of malaria and other major diseases

Goal 7: Ensure environmental sustainability

Target 9: Integrate the principles of sustainable development into country policies and programs and reverse the loss of environmental resources

Target 10: Halve by 2015 the proportion of people without sustainable access to safe drinking water

Target 11: Have achieved by 2020 a significant improvement in the lives of at least 100 million slum

dwellers

Goal 8: Develop a global partnership for development

Target 12: Develop further an open rule-based, predictable, non-discriminatory trading and financial system (includes a commitment to good governance, development and poverty reduction—both nationally and internationally).

Target 13: Address the special needs of the least developed countries’ (includes tariff- and quota-free access for exports, enhanced program of debt relief for and cancellation of official bilateral debt; and more generous official development assistance for countries committed to poverty reduction)

Target 14: Address the special needs of landlocked countries and small island developing states (through the Program of Action for the Sustainable Development of Small Island Developing States and 22^nd General Assembly provisions)

Target 15: Deal comprehensively with the debt problems of developing countries through national and international measures in order to make debt sustainable in the long term.

Target 16: In cooperation with developing countries, develop and implement strategies for decent and productive work for youth.

Target 17: In cooperation with pharmaceutical companies, provide access to affordable essential drugs in developing countries.

Target 18: In cooperation with the private sector, make available the benefits of new technologies, especially information and communications technologies.

References

Amartya Sen (1994): ‘Growth Isn’t Everything’, Interview of Prof. Amartya Sen in Business Today, August 22-September 6.

Chen, Shaohua, Martin Ravallion (2008): The Developing World Is Poorer Than We Thought, But No Less Successful in the Fight against Poverty, Policy Research Working Paper 4703, Development Research Group ,The World Bank, August

Guruswamy, Mohan, Ronald Joseph Abraham (2006): ‘Redefining Poverty: A New Poverty Line for a New India ’, Economic and Political Weekly, No. 25 June 24.

UNDP (2003): Human Development Report 2003, New York :

Highlights of Current Economic Scene

Growth Scenario

For the first time in 60years, the world economy is set to be in contraction because of the deepening financial crisis; which will lead to the global GDP shrinking by up to 1% in 2009.

International Monetary Fund (IMF) said that Indian growth is likely to see a downturn to 6.25% in 2008-09 due to falling corporate investment and deteriorating global outlook. It also projected that India ’s growth will moderate to 5.25% next fiscal year (2009-10).

Abhijit Sen, Planning Commission member is of the opinion that growth in the next fiscal year (2009-10) may reach 7% because of stimulus packages, which is being introduced in the economy.

Broking house CLSA Asia-Pacific Markets has forecast GDP growth of 4.6% in 2009-10 and expects the domestic economy to stabilize only by early 2010.

C Rangarajan, member of Rajya sabha, has commented that the economy, particularly the economies of developed countries will start showing distinct improvement only in 2010-2011.

Agriculture

Wheat procurement has begun on 18 March 2009, in Madhya Pradesh (MP), Rajasthan and Gujarat , ahead of the normal schedule of April 1. The central government and state agencies have procured 2.08 lakh tonnes of wheat as on 31 March 2009, as compared to 86,464 tonnes during the corresponding period a year ago. Even though state government of Madhya Pradesh has not offered any bonus, unlike Rs 100 per quintal that had been offered last year, then too, the procurement level from the state has increased to 1.56 lakh tonnes as against 79,270 tonnes last year. Wheat procurement in Rajasthan has stood at 47,598 tonnes as compared to 382 tonnes in the year-ago period. Arrivals in the state have improved to nearly 78,000 tonnes as against 8,729 tonnes last year. In Gujarat purchase of wheat so far has contributed 4,821 tonnes. Meanwhile, rice procurement, which began in October last year, has reached to 261.69 lakh tonnes as on 31 March as compared to 217.26 lakh tonnes in the year-ago period.

The central government would not be extending wheat stockpile limits beyond 30 April 2009 due to record harvest in the last rabi marketing season on account of bumper crop and high procurement prices. Wheat production this year is expected to be around 77.8 million tonnes as compared with a record 78.6 million tonnes last year.

The Centre for Monitoring Indian Economy (CMIE) has reiterated that crop production in 2010 is expected to rise by 1.7%. Foodgrains production is expected to increase by 1.1%. Of which, wheat production is projected to remain at the same level of 80-million tonnes as estimated for financial year 2009. Rice production would increase by 1.1% to 98.8 million tonnes, while production of coarse cereals and pulses, each, is also expected to rise slightly as that of last year. Growth in non-food crops production is placed at 2.4% of which sugarcane and oilseeds production would show an upward trend, while cotton production is expected to fall.

The central government has decided to release 54 lakh tonnes of non-levy (free sale) sugar for the April-June 2009 quarter as against 52 lakh tonnes made available during the corresponding quarter of the last sugar season. Further, it has stated that any unsold or undispatched stocks out of normal quota during the month and 30% of the remaining 75% of the dismantled second buffer stock (6 lakh tonnes) should be sold or dispatched by 30 June 2009; otherwise it would be converted into levy sugar. It has extended the validity period of non-levy sugar quota for the March 2009 by ten days, i.e. upto 10 April 2009. If the sugar prices in the open market rises sharply then government would release additional non-levy sugar.

Central Organisation for Oil Trade and Industry (COOIT) has reiterated that India 's vegetable oil import is expected to surge by 35% to 8.5 million tonnes during this oil year (November-October) in 2008-09 season, as fall in prices in the global markets coupled with zero import duty have prompted local traders to make large-scale purchase from the overseas market. According to the latest data by Solvent Extractors' Association (SEA), purchase of oils in the first four months of this season, starting November, has surged by 68% to 2.9 million tonnes against 1.7 million tonnes in the year-ago period.

Onion prices in the retail market of Uttar Pradesh are not sliding down despite import from neighbouring states and the arrival of the new crop, on account of large-scale hoarding of the commodity by traders in the state. At present, prices of onion in the wholesale market are hovering around Rs 650-700 per quintal, whereas retail rates are as high as Rs 1,200. Interestingly, retail rates were as high as Rs 1,500 a fortnight back.

Out of the total cotton procurement of 88 lakh bales purchased by March 2009 by Cotton Corporation of India (CCI), so far it has sold 61 lakh bales in the domestic market and has exported 15,000 bales to the overseas countries. National Agricultural Co-operative Marketing Federation of India Ltd (NAFED) has offloaded over 3 lakh bales of the total procurement of 37 lakh bales. Both government agencies have sold 64 lakh bales of cotton till March, out of the total purchases of 1.25 crore bales. This improvement in procurement by both agencies is due to hike in minimum support price (MSP), i.e. for standard long staple cotton MSP has been raised to Rs 3,000 per quintal for 2008-09 from Rs 2,030 last year while for the medium staple cotton it has been increased to Rs 2,500 from Rs 1,800 per quintal. Further CCI has been offering a discount of Rs 400 per candy (one candy equals 356 kg) on purchase between 10,000 and 25,000 bales, Rs 450 per candy for buyers of over 25,000 to 50,000 bales and for purchases between 50,000 and 2 lakh bales a buyer will get a discount of Rs 500 per candy and Rs 650 per candy for purchases over 2, 00,000 bales,

All-India Coffee Exporters Association reiterated that coffee exports from the country in 2008-09 have stood at 2.04 lakh tonnes (provisional) as against 2.22 lakh tonnes in the financial year 2007-08, reflecting a downfall of 8%. It is the second lowest performance since last four years. This reduction is projected due to global economic recession. Contrary to it, in value terms, exports of coffee have witnessed higher dollar earnings at US $ 521 million in 2008-09 compared to US $ 512 million in financial year 2007-08. In rupee terms, coffee exports have raked in Rs 2,291 crore in 2008-09 as against Rs 2,074 crore during the last fiscal.

Coffee exports have declined by 20% to 55,812 tonnes between January-March 2009 as against 70,162 tonnes during the same period a year ago, on poor demand for instant coffee and value-added products. Exports of Instant coffee dropped to 7,358 tonnes during the three month- period from 9,100 tonnes in the year-ago period. Re-exports of the products have also declined during the same period.

As per Rubber Board estimates, production of natural rubber has increased by 5% to 8.65 lakh tonnes during the year ended 31 March 2009, due to higher tapping during the October-December period. Total consumption of rubber has increased to 8.66 lakh tonnes during the financial year as compared with 8.61 lakh tonnes consumed during the same period a year ago. In 2008-09, higher production led to 10% decline in imports to 78,000 tonnes while stocks at the end of the financial year 2009 have risen to 24% to 2.04 lakh tonnes. Production during 2009-10 is likely to rise to 8.67 lakh tonnes while consumption is likely to increase to 8.75 lakh tonnes. Imports are expected to decline to 60,000 tonnes, while stocks by the end of the financial year 2010 would be around 2.05 lakh tonnes.

The central government would be imposing an anti-dumping duty on imports of polyester yarn from China , Vietnam and Thailand . This duty would be ranging from US $1,112 to US $527 per tonne and would be effective till 25 September 2009.

Industry

The General Index (IIP) stands at 280.4, which is 0.5% lower as compared to the level in the month of January 2008. The cumulative growth for the period April-January 2008-09 stands at 3.0% over the corresponding period of the previous year.

The annual growth of thee Indices of Industrial Production for the Mining, Manufacturing and Electricity sectors for the month of January 2009 at (-) 0.4%, (-) 0.8% and 1.8% as compared to January 2008. The cumulative growth during April-January, 2008-09 over the corresponding period of 2007-08 in the three sectors have been 2.7%, 3.0% and 2.6% respectively, which moved the overall growth in the General Index to 3.0%.

In terms of industries, as many as five (5) out of the seventeen (17) industry groups (as per 2-digit NIC-1987) have shown positive growth during the month of January 2009 as compared to the corresponding month of the previous year. The industry group ‘Machinery and Equipment other than Transport Equipment’ have shown the highest growth of 17.5%, followed by 10.3% in ‘Other Manufacturing Industries’ and 5.3% in ‘Beverages, Tobacco and Related Products’. On the other hand, the industry group ‘Food Products’ have shown a negative growth of 16.1% followed by 15.2% in ‘Wood and Wood Products; Furniture and Fixtures‘ and 13.4% in ‘Transport Equipment and Parts’.

As per Use-based classification, the Sectoral growth rates in January 2009 over January 2008 are (-) 1.0% in Basic goods, 15.4% in Capital goods and (-) 9.2% in Intermediate goods. The Consumer durables and Consumer non-durables have recorded growth of 2.5% and 0.7% respectively, with the overall growth in Consumer goods being 1.1%.

Infrastructure

The Index of Six core industries having a combined weight of 26.7 per cent in the Index of Industrial Production (IIP) with base 1993-94 stood at 242.0(provisional) in February 2009 and registered a growth of 2.2% (provisional) compared to a growth of 7.0% in February 2008. During April-February 2008-09, six core-infrastructure industries registered a growth of 3.0% (provisional) as against 5.8% during the corresponding period of the previous year.

Crude Oil production (weight of 4.17% in the IIP) registered a negative growth of 6.2% in February 2009 compared to a growth rate of 2.3% in February 2008. The Crude Oil production registered a growth of (-)1.7 (provisional) during April-February 2008-09 compared to 0.5% during the same period of 2007-08.

Petroleum refinery production (weight of 2.00% in the IIP) registered a growth of 0.5% (provisional) in February 2009 compared to growth of 5.8% in February 2008. The Petroleum refinery production registered a growth of 3.0% (provisional) during April-February 2008-09 compared to 7.2% during the same period of 2007-08.

Coal production (weight of 3.2% in the IIP) registered a growth of 6.0% (provisional) in February 2009 compared to growth rate of 11.6% in February 2008. Coal production grew by 8.7% (provisional) during April-February 2008-09 compared to an increase of 5.6% during the same period of 2007-08.

Electricity generation (weight of 10.17% in the IIP) registered a growth of 0.3% (provisional) in February 2009 compared to a growth rate of 9.8% in February 2008. Electricity generation grew by 2.1% (provisional) during April-February 2008-09 compared to 6.6% during the same period of 2007-08.

Cement production (weight of 1.99% in the IIP) registered a growth of 8.3% (provisional) in February 2009 compared to 12.8% in February 2008. Cement Production grew by 7.2% (provisional) during April-February 2008-09 compared to an increase of 7.9% during the same period of 2007-08.

Finished (carbon) Steel production (weight of 5.13% in the IIP) registered a growth of 3.6%(provisional) in February 2009 compared to 2.3% (estimated) in February 2008. Finished (carbon) Steel production grew by 2.4% (provisional) during April-February 2008-09 compared to an increase of 5.6% during the same period of 2007-08.

Inflation

The official Wholesale Price Index for ‘All Commodities’ (Base: 1993-94 = 100) for the week ended 21 March 2009 rose marginally by 0.1 percent over the previous week.

The annual rate of inflation, calculated on point-to-point basis, stood at 0.31 percent (Provisional) for the week under reference as compared to 0.27 percent (Provisional) for the previous week and 7.85 percent during the corresponding week of the previous year.

The index of major group primary articles rose marginally to 245.7 from 245.6 for previous week mainly due to higher price of barley, bajra, soyabean, niger seed, raw rubber and copra etc.

The index for major group fuel, power, light and lubricants marginally declined due to low price of furnace oil.

The index for major group manufactured products rose by 0.2 percent over the week due to higher prices of tea, oil cakes and edible oils etc.

Wholesale price index for ‘All Commodities’ (Base: 1993-94=100) revised up to 229.3 from 230.1 for the week ended 24 January 2009 and annual rate of inflation based on final index, calculated on point to point basis, stood at 4.70 percent as compared to 5.07 percent (Provisional).

Financial Market Developments

Capital Markets

Primary Market

According to data compiled by SMC Capitals, the brokerage arm of SMC Global, a steep fall in the number of proposed initial public offerings (IPOs), coupled with the downslide in the domestic bourses during 2008, has hit the merchant banking fraternity, with fees plunging 70% in a year. During the calendar year 2008, the total fees charged by India-based merchant bankers dipped to Rs 230 crore, a drop of 70% from Rs 771 crore in the year 2007. According to the study, the average percentage fee range for IPOs of size less than Rs 500 crore is about 3.17% to 3.67% during 2007 and 2008.

Qualified institutional placement (QIP) deals, which were struck during the bull run at hefty premiums, have now turned sour because of the sharp fall in the valuations of companies. According to data from SMC Capital, the mark-to-market (MTM) value of QIP deals raised has fallen 73.47% to $1.75 billion (about Rs 8,841 crore) from $6.58 billion (about Rs 33,245 crore). Data shows that 49 QIP deals which have raised $6.58 billion till March were all in losses. Large financial institutions have lost more than Rs 24,000 crore in these QIP issues. These include HSBC, Deutsche Bank, Citigroup, Merrill Lynch, Fidelity, Goldman Sachs and others who had subscribed to these issuances during the 2006-08. In August 2008, the Securities and Exchange Board of India (SEBI) had amended pricing norms for QIPs by allowing firms to fix the price based on the average price of two week. Earlier, they had to fix the price based on six-month average prices. However, however not a single QIP issue has hit the market since then.

Secondary Market

Broader indices have notched up gains for the third consecutive week boosted by some encouraging news from the US . Stock markets across the globe, including in India , responded to the G-20 meeting on 2 April, expecting positive announcements. After the indices saw strong profit taking on 30 March, they bounced back on the next three trading days and wiped out all the losses incurred on Monday. There were gains in three out of the four trading sessions in a curtailed week on account of Ram Navami. Domestic markets closed at five-month highs. The BSE Sensex gained 300 points or 2.99% to 10,3489 during the week with BSE Mid Cap and BSE Small Cap indices outperforming BSE Sensex with 6.51% and 6.13% respectively. Negative news of a contraction of manufacturing activity and fall in exports for a fifth straight month did not dampen market sentiments. Inflation rose 0.31% for the week ended 21 March. The NSE Nifty ended 102 points or 3.29% to 3,211. The CNX Mid Cap index gained 4.78%.

During the week under review, all the sectoral indices of BSE recorded positive gains. Among them, the BSE Realty sector was the largest gainer with 11.2% followed by the BSE consumer durables with 8.5%, BSE Healthcare with 7.0%, BSE Metal with 6.8% and BSE Oil & Gas with 6.7%. On the weaker side, the BSE FMCG sector gained only 0.04% over the week.

The SEBI is considering regulations to help settle trade undertaken in the over the counter (OTC) market through a clearing corporation. The market regulator has already initiated discussions in this regard with the Reserve Bank of India (RBI).

The mutual fund industry is likely to witness an erosion in its average assets under management (AAUM) during final month of the fiscal year 2008-09 due to redemptions from liquid and bond funds. As per data from Association of Mutual Funds in India (Amfi), the total AAUM of 17 fund houses that have declared AAUMs so far has fallen by over Rs 4,000 crore, as compared to February. Industry experts believe that a depletion in AAUM is a natural year-end phenomenon as banks and corporates tend to redeem their investments in order to shore up their balance sheets during the end of the fiscal.

The drop in assets under management (AUM) of the mutual fund industry to sub-Rs 5 lakh crore levels has led to a flurry of activity in the mutual fund industry towards wooing investors. This time around, there are a lot of investor friendly plans on the anvil. Soon, on the website of the Amfi, investors in the country will able to glance at dividends declared by asset management companies (AMC). Amfi is also in process of launching a common platform for mutual funds transactions, which will facilitate transactions like buying and selling schemes. The mutual fund industry, at the moment, is going through testing times. The withdrawal of funds by the banking sector has seen most of the big AMC report depleted AUM numbers. Among the top five houses, only HDFC Mutual Fund has seen an increase in the AUM in March. Additionally, the mutual fund industry also faces a big asset-liability mismatch. UK Sinha, chairman of UTI Mutual Fund, mentioned that the industry acquired 75-80% of its resources from short-term avenues, and then invested these in long-term loans to corporates.

With foreign institutional investors (FIIs) buoyed by Timothy Geithner’s $1 trillion rescue plans, domestic institutional investors (DIIs) are using this recent rise in stocks to sell some of their holdings. According to the BSE’s provisional data, DIIs, which include mutual funds, banks and insurance companies, have been net sellers of Rs 275.83 crore in the last six trading sessions. While FIIs have bought as much as Rs 2,678.24 crore during the same time, they have sold only Rs 452 crore. Since 23 March, DIIs have bought only Rs 471.39 crore on a net basis.

Derivatives

Though spot market shows signs of overheating, sentiment was cheery through the opening week of the April settlement. Trading volumes were high and prices have risen with high velocity. The FIIs made a significant contribution to the rally. They were net buyers through March and hold around 38% of open interest (OI). In the first few sessions of April, daily derivatives volumes comfortably crossed Rs 50,000 crore. During the past six sessions, the FIIs have been net sellers thrice. The Nifty has risen nearly 20% in the past three weeks. The Nifty futures and CNXIT futures are both at some premium to their respective underlying. The Nifty put-call ratio (PCR) is reasonably healthy but it’s edging up to dangerous levels. In terms of OI, the overall Nifty PCR is at 1.7 while the April PCR is 2.1 with around 67% of OI in the April PCR. PCRs above 2 are unusual – this has been caused by cash out of calls while outs have increased.

The PCR of the stock options market on the NSE increased to 0.34 in March 2009 from the level of 0.16 in April 2008. This reflects a bearish sentiment has played in the market with sellers outnumbering buyers during 2008-09. The PCR was 0.16 in April 2008 and increased thereafter to 0.41 in November after reaching a lower level of 0.20 in August. But after November, the ratio was more or less stable around 0.34 up to March 2009. The volume of call options have increased from 69.21 crore in April to 94.49 crore in July and decreased thereafter to 46.61 crore in November. Again in December 2008, the volume increased to 77.83 crore and reached a higher level of 120.38 crore in March 2009. On the other hand, volume of put options also increased from 10.82 crore during April 2008 to 26.12 crore during July 2008 and decreased thereafter to 16 crore in October 2008. Again in November, the volume of put option increased to 19.23 crore and reached a higher level of 40.42 crore in March 2009. Similarly, in terms of value, call options showed a steady increase from Rs 13,139 crore during April to Rs 19,354 crore during July, decreased thereafter to a lower level of Rs 6,428 crore in November.

Government Securities Market

Primary Market

On April 2 2009, RBI re-issued 7.56% 2014 and 7.94% 2021 for the notified amount of Rs 8,000 crore and Rs 4,000 crore, respectively. The cut-off yield for the security maturing in 5-year was set at 6.80% and for the 12-year paper was at 7.62%.

The RBI has permitted transfer of or trading in the Power Bonds maturing on 1 October 2013 and 1 April 2014, issued by various States to Central Public Sector Undertakings (CPSUs) in terms of the Tripartite Agreement among 27 State Governments, Ministry of Power, Government of India and the RBI under One Time Settlement Scheme for dues of State Electricity Boards with effect from 1 April 2009.

RBI auctioned 91-day treasury bills (TBs) and 182-day TBs for the notified amounts of Rs 500 crore each, respectively on 2 April 2009. The cut-off yield for the 91-day TB was set at 4.50% and 182-day TB at 4.70%.

Secondary Market

Call rates edged up, as banks stepped up borrowing ahead of the financial year-end and the long weekend. Demand was also high in the first week of the bi-weekly reporting cycle. Rates touched a high of 5.75% intra-week, making a range of 3.8-5.0% during the week. Rates ended just below 3.80-4%. However, ample liquidity prevailed in the banking system and most banks were able to meet their reserve requirements. A sharper drop in call rates was averted as money was also lent for a four-day period.

Government bonds recovered some ground in the later half of the week,due to some uncertainty getting alleviated owing to RBI announcements of bond buybacks, along with the market stabilisation scheme (MSS) unwind plan aiding sentiment. After market hours, RBI said it would buy up to Rs 60,000 crore of bonds at an auction on 1 April. The faint rise in the WPI inflation rate (0.31% Y-o-Y from the previous 0.27% Y-o-Y) did hit bonds for a brief period.

In view of its comfortable cash position, the Centre, in consultation with the RBI, has now decided not to transfer the balance amount of Rs 33,000 crore from the MSS cash account to the normal cash account of the government in the current fiscal year. Based on the emerging fund requirements of the government, Rs 33,000 crore of MSS will be de-sequestered against the approved market borrowing programme or bought back in the fiscal year 2009-10. Following the amendment to the memorandum of understanding on the MSS, it was decided that an amount of Rs 45,000 crore would be transferred in installments from the MSS cash account to the normal cash account of the government by 31 March. An equivalent amount of government securities were to accordingly form part of the normal borrowing of the government. In this regard, an amount of Rs 12,000 crore was transferred from the MSS cash account to the normal cash account of the Centre on 4 March. The MSS outstanding as on 31 March is Rs 88,773 crore. On Tuesday, the RBI announced the treasury bills (T-Bills) issuance for the fiscal year 2009-10. The TBs, which were issued for enhanced amounts in the fiscal year 2008-09 and have become due for redemption in the first quarter of the fiscal year 2009-10, will be rolled over.

Bond Market

During the week under review, two FIs/banks and one central PSU tapped the bond market through issuance of bonds to mobilise Rs 1,000 crore.

Profile of Major Commercial Bond Issues for the Week Ending 3 April 2009
Sr	Issuing Company / Rating	Nature of Instrument	Coupon in % per annum and tenor	Amount in Rs crore
No	Issuing Company / Rating	Nature of Instrument	Coupon in % per annum and tenor	Amount in Rs crore
	FIs / Banks
1	Corporation Bank AAA by Crisil, Care.	Lower Tier II Bonds	8.85% for 122 months.	400 (100)
2	Indusind Bank Ltd A&A+ by Fitch, Icra.	Lower Tier II Bonds	10.50% for 63 months.	100
	Central Undertakings
1	India Infrastructure Finance Co Ltd AAA (SO) by Icra.	Tax-Free Bonds	8.10% for 15 years.	500
	Total The amount shown in brackets above denotes the greenshoe option of the issue.			1000 (100)
	Source: Various Media Sources

The RBI decided to made amendments to the guidelines on perpetual non-cumulative preference shares (PNCPS) as part of Tier-I capital and perpetual cumulative preference shares (PCPS) or redeemable non-cumulative preference shares (RNCPS), redeemable cumulative preference shares (RCPS) as part of upper tier-II capital. Accordingly, talking about the guidelines on perpetual non-cumulative preference shares (PNCPS) as part of tier-I capital, the RBI said that the dividend shall not be cumulative. This essentially means the dividend missed in a year will not be paid in future years, even if adequate profit is available and the level of CRAR conforms to the regulatory minimum. When dividend is paid at a rate lesser than the prescribed rate, the unpaid amount will not be paid in future years, even if adequate profit is available and the level of CRAR conforms to the regulatory minimum. Talking about instruments like perpetual cumulative preference shares, redeemable non-cumulative preference shares and redeemable cumulative preference shares as part of upper tier-II capital, the RBI said that the coupon payable on these instruments will be treated as interest and accordingly debited to Profit & Loss Account. However, it will be payable only if in the case of PCPS and RCPS the unpaid or partly unpaid coupon will be treated as a liability. The interest amount due and remaining unpaid may be allowed to be paid in later years subject to the bank complying with the above requirements. In the case of RNCPS, deferred coupon will not be paid in future years, even if adequate profit is available and the level of CRAR conforms to the regulatory minimum.

RBI relaxed rules for subordinated debt issues by primary dealers, removing a restriction on the coupon rate offered on their Tier-II and Tier-III debt. Primary dealers have been allowed to issue subordinated Tier II and Tier III bonds at coupons decided by their boards, the bank said in a notification on its website late on 1 April. Under the previous rule, primary dealers could not offer a maximum coupon of 200 basis points above a comparable government bond yield. The change takes effect with immediate effect, the statement said.

In a bid to make the corporate bond market more transparent, and to ensure timely settlement of transactions Capital market regulator SEBI plans to introduce the system of clearing house for over-the-counter (OTC) products in the bond market. A clearing house provides clearing and settlement services for financial transactions, and also acts as a central counterparty.

As per Bloomberg data, India Infrastructure Finance Co and Reliance Gas Transportation Infrastructure Ltd led Indian corporate bond sales to a record quarter as borrowers sought alternatives to scarce bank loans. Companies raised $7.45 billion in the three months to 31 March 2009, 44 % more than a year earlier and the most in a quarter. New Delhi-based India Infrastructure Finance raised Rs 10,000 crore from two sales of 6.85 % notes. According to RBI data credit to manufacturers and individuals rose 15% to Rs 26.4 lakh crore in the period of 28 March 2008 to13 March 2009, excluding advances made to state agencies for food procurement. State Bank of India , the nation’s