Current Economic Statistics and Review For the
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I Theme
of the week: Civil Aviation: Moving towards a Take-off Stage
The
objective of this note is to review the current state of civil aviation as
a significant part of economic infrastructure in The
aviation industry plays an indispensable role in the growth and efficiency
of an economy. It facilitates international trade, travel and tourism and
foreign direct investment, thereby enabling the growth of the economy and
making it internationally competitive. Over 40 per cent of I Evolution
of Civil Aviation in
After
World War II, more than 100 airlines entered in Indian airline industry.
Tata group owned Air India (AI) was the largest carrier in the country. In
1953, Air Corporations Act was enforced and the industry was nationalised.
The name of Air Further
in 1990, private sector players were allowed to operate as air taxi
operators, but not permitted to operate scheduled services. During the
same period, a number of private sector players like Jet Airways, Air
Sahara, Damania Airways, NEPC Airlines and East West Airlines emerged with
domestic operations. Open
Sky Policy1992 In
1992, In
1994, the government took a landmark decision of repealing Air
Corporations Act, 1953 and allowed private operators to provide scheduled
air transport services on a case-to-case basis. The operators had to
display a good financial strength, a minimum fleet of three aircrafts,
appropriate maintenance and training facilities. The new regulations
classified air routes in three categories depending upon the need for air
transport services in different regions of the country. In
1997, the privatisation policy was further liberalised and foreign equity
participation of up to 40 per cent was (100 per cent in case of NRIs) was
allowed in domestic airline sector. By 1997, there were seven scheduled
private airlines and 18 non-scheduled operators in the country.
Subsequently, many of them had to wind up their operations except Jet
Airways and Sahara Airlines that are currently operating in The
Ninth Five Year Plan (1997 – 2002) initiated significant transformation
in the sector with the following remarkable developments: 1.
The
government considerably disengaged itself from commercial operations of
airlines. 2.
The
government encouraged an increase in the role of private sector in order
to bridge the resource gap as well as to enhance efficiency. 3.
The
decision of disinvestments of two public sector airlines namely, Air 4.
Another
milestone came with the decision to restructure existing airports at Unfortunately,
the decisions that were taken during the Ninth plan were delayed due to
varied number of reasons. Further, the main objective of the Tenth
Five-Year Plan (2002-07) is to provide world-class infrastructure
facilities for efficient, safe and reliable air services. Making
provisions for air services to remote and inaccessible areas has also been
identified as a priority. Moreover, recognising that the air transport is
a field for competitive development, the Tenth Plan lays emphasis on
private sector participation in the aviation sector. To achieve the
objectives of such an ambitious plan, an outlay of Rs. 12,928 crore has
been sanctioned. According
to the Mid-Term Appraisal of Tenth Five-Year Plan, only Rs. 3955 crore,
which accounts to 31.6 per cent of the total outlay is estimated to have
been spent so far. The bulk of the expenditure in both Air India and
Indian Airlines is due to repayment of loans taken for acquiring
aircrafts. Similarly, the process of disinvestment of these two airlines
could not be completed since the qualified bidders withdrew at the final
stage. Apart from these, there
are several projects that are taken by AAI. However, their unsatisfactory
formulation is due to incomplete pre-construction activities such as land
acquisition. In addition to this, two As
discussed above, revolutioned by liberalisation, the aviation sector in Although
reforms in aviation sector were initiated in the post-reform period, a big
push to concrete reforms was received only in the last two years following
the recommendations of Naresh Chandra Committee Report tabled in 2003. Naresh
Chandra Committee Report 2003 The
Government of India had constituted a committee under the chairmanship of
Mr. Naresh Chandra, former Cabinet Secretary, to prepare a road map for
the Civil Aviation sector in 2003. The Committee has proved as the most
revolutionary stepping-stone in the reform process. It focused on number
of fundamental issues regarding reduction in taxes, excise as well as
sales tax, improving airport infrastructure, privatisation of loss-making
airports and raising of FDI cap in airlines, and thereby paved
the way for the much-awaited, new Civil Aviation Policy. The
recommendations of the committee are as follows: 1.
To
make air travel more affordable, the committee had recommended that the
taxes, excise as well as sales tax be brought down. Taxes on aviation
turbine fuel (ATF) make up 45 per cent of the fuel cost. Nowhere in the
world, taxes on aviation turbine fuel were as high as in 2.
Another
major recommendation of the committee was that foreign airlines be
permitted to pick up a 49 per cent equity stake in the domestic and
international scheduled air transport services. The government at present
has implemented the same by allowing 49 per cent FDI in case of domestic
airlines. 3.
Regarding
privatisation of Indian Airlines and Air 4.
Further,
there are 125 airports in the country but only few of them are profitable.
The committee has recommended the government to privatise these airports
and also suggested that Mumbai and 5.
The
committee had suggested the creation of an Essential Air Services Fund to
provide government subsidy support and to be supplemented by a sector
specific cess of 5 per cent on the air fare along with the proceeds from
the privatisation of airports. These funds will be available for aviation
activities in non-viable areas like the North East. Importantly,
the government has already agreed upon the most of these recommendations.
All these major stepladders and developments needed basic institutional
pillars to implement various decisions that were taken from time to time.
II Institutional
Framework and Current Status of Aviation Industry
The institutional framework comprise of four distinct entities – 1. Institutional Structure 2. Market Structure 3. Leading Airlines or Players in industry 4. Airport Infrastructure Institutional
Structure
The
institutional structure in civil aviation sector can be broadly classified
into three distinct functional entities - (ii) Regulatory-cum-developmental, (iii) Operational and, (iv) Infrastructural Following
are the government agencies, which shoulder these various types of
functions- (i)
Ministry
of Civil Aviation The
Ministry of Civil Aviation performs regulatory function, as it is
responsible for the formulation of national policies and programmes for
development of civil aviation. The Ministry is also administratively
responsible to oversee the provision of airport facilities, air traffic
services and carriage of passengers and goods by air. (ii)
Directorate
General of Civil Aviation (DGCA)
DGCA
is an attached body of the Ministry of Civil Aviation primarily dealing
with safety issues. It’s main functions include implementation and
monitoring of stipulated standards regarding licensing of personnel,
operations of aircraft, licensing of civil aerodromes, investigation of
minor accidents, drafting of aviation legislation etc. (iii)
Airports
Authority of Airports
Authority of India (AAI) is a statutory body under the Ministry of Civil
Aviation, which shoulders the responsibility of creating, upgrading,
maintaining and managing civil aviation infrastructure both on the ground
and the air space, thus performs infrastructural function. At present, it
manages 12 international airports and 89 domestic airports, out of which
62 airports are operational. It was set up on April 1, 1995 by
amalgamating the International Airport Authority of India and the National
Airport Authority of India with a view to accelerate the integrated
development, expansion and modernisation of the operational, terminal and
cargo facilities at the airports of the country. AAI also provides air
traffic management services over entire Indian air space and adjoining
oceanic areas with ground installations at all airports and 25 other
locations to ensure safety of aircraft operations.
Market
Structure
The
aviation industry in (i) An industry dominated by a small number of large firms, (ii) Firms sell either identical or differentiated products (the only differentiation here being in service quality and frills offered), and (iii) The industry has significant barriers to entry (which holds true both with respect to regulations and huge capital investment required). Apart from the government agencies, there are number of airline operators which perform operational functions in a specific market structure. Leading
Players in industry Currently,
only a few large players dominate civil aviation industry. These include
government owned public sector undertakings (PSUs) like Air India Ltd.,
Indian Airlines Ltd. and Pawan Hans Helicopters Ltd. along with the
private airlines like Jet Airways, Air Sahara, Alliance Air, Air Deccan,
Spice Jet, Kingfisher Airlines, Royal Airways and Go Airways.
With regard to domestic operations, Jet airways has emerged as a
market leader, while the government owned airlines like Indian Airlines
and Air India combined have lost their market leadership in last couple of
years. Jet Airways accounts for as high as 44 per cent of the total market
share in the passenger traffic as on March 2004, followed by Indian
Airlines and Sahara Airlines. Similarly, Jet Airways has overtaken others
in case of market share in total domestic cargo traffic by accounting to
37 per cent of the total share. It
is interesting to note that though the number of players is on rise,
especially since last two years due to liberalisation in the sector, the
number of aircrafts owned by these private players is too small to cater
vast and growing demand in the domestic market. The only exception to this
is Jet Airways which has been able to expand it’s business in terms of
greater number of aircrafts and consequently wider coverage. The success
story of Jet Airways can be attributed to the fact that it has been able
to raise huge financial resources by floating its Initial Public Offerings
(IPOs) in the market. Recognising the fact that the sector is highly
capital intensive, it has raised huge capital to buy aircrafts. Moreover,
it has also focused on quality of service and could always differentiate
itself on the basis of passenger comfort.
Airport
Infrastructure The
airports infrastructure and various air players are managed and controlled
by aforesaid government authorities. III Issues
and Concerns A
take-off stage of the Indian aviation industry raises number of issues,
which needs to be addressed. These issues revolve around the privatisation
and modernisation of airports, performance of regulatory agencies,
effectiveness of civil aviation policy and foreign direct investment. The
most talk-about among these is privatisation and a resultant competition
in the sector. 1.
Privatisation
in civil aviation The
implications of privatisation could be explained in terms of its various
pros and cons. A number of low cost carriers that has mushroomed in a
short span of time have benefited travelers to a great extent. Consumers
are increasingly finding these carriers profitable due to reasonable air
fares, convenient timings and increased coverage due to increase in the
number of flights. Moreover, a low cost airline offers a point-to-point
service, rather than a hub-and-spoke concept followed by conventional full
service airlines. In a hub-and-spoke model, the aircraft flies out from
the airport only when all the connecting flights come in. Whereas in the
point-to-point model, a passenger traveling on two separate connecting
flights is issued two separate tickets. With this he checks out and checks
in to take the connecting flight without loss of time. Another
notable feature of low cost carriers is their operational cost structure.
Unlike full service airlines in which the passengers are provided with
many attendant services like hot meals, frequent flyer programs, spacious
legroom etc., the low cost carriers do not provide such kind of frills and
also work with minimum number of air hostesses on the flight. Removing
business class, storage space for meals and limiting seat pitch makes
space for additional seats, which can increase seat capacity of the plane
by almost 20 per cent. Moreover, these aircrafts take less time to leave
an airport after landing and thereby increases their flight time by 20-25
per cent as compared to full service aircrafts. They also save on
distribution costs by disintermediating travel agents and central
reservations systems and sell tickets through internet and call centres.
Finally, it may be stated that privatisation has brought win-win situation
for both, to the customers in terms of low air fares and to various air
players in terms of higher market share and greater capacity utilisation.
What more, it might reduce considerable burden on the other transport
sectors like road and especially railways in future.
No
doubt that the increasing number of low cost carriers have proved to be
extremely beneficial to users through a fierce competition that made air
travel so easy and affordable to middle class people. However, the story
doesn’t end here. There are many difficulties, which remained
unanswered, the most crucial being infrastructure development. Is the
existing airport infrastructure capable enough to accommodate such a
faster pace of growth of airlines? The
issue needs to be seriously taken up and thought of. The problems like
delayed flights, lack of sufficient runway space, delayed ground
clearance, lack of quality of service and safety of passengers can not be
overlooked. Airports of the country are backbone of the civil aviation
sector and currently, they are ill-equipped to handle high levels of
sustained growth of air passengers. Surprisingly, only 62 domestic and 12
international airports of the country are currently in active use
(Investment and Credit Rating Agency). Hubs at 2.
Financing
of Airport Infrastructure
Financing of airport infrastructure has some inherent problems.
These projects have a large element of sunk cost, a very long gestation
period and highly uncertain returns on investment based on several
assumptions of traffic growth that may fail to materialize. The current
pattern of financing is predominantly based on internally generated
resources of the AAI. Funding through external assistance, external
commercial borrowings, loans and equity has been negligible. The
allocation of budgetary grants is limited to certain airports in remote
and inaccessible areas. Considering the astronomical sums which seem to be
required for modernization and upgradation of existing airports and for
the construction of new airports at Mumbai (Rs.10, 000 crore), Bangalore
(Rs.1, 600 crore), there has to be a clear public-private partnership so
as to utilize state resources in the most optimal manner. 3.
Foreign
Direct Investment (FDI)
FDI cap has been raised to 49 per cent from 40 per cent in domestic
airlines in October 2004. However, foreign airlines are still debarred
from equity participation in domestic air transport operations. There is
an urgent case for reviewing this policy, as operation of airlines
requires expertise and new technology as much as it does capital.
4.
High
prices of Aviation Turbine Fuel (ATF)
The price of ATF in Moreover, currently the government-owned oil companies enjoy excusive privilege over the supply of ATF. Such a monopoly of these companies is incongruent with the ongoing process of liberalisation in the oil sector. The price of ATF is expected to decline if the airlines are allowed to source it from the supplier of their choice. In order to facilitate this process, Naresh Chandra Committee has suggested that the AAI should offer to buy out the fuel supply hydrants and provide all oil companies an equitable access to such facilities. 5.
Route
Dispersal Guidelines
It has been experienced that the air operations in the Category II
routes, which are meant to connect the northeastern region, 6.
Performance
of Regulatory Agencies
The performance of
To improve the performance of airports and to bring overall
efficiency in the aviation sector, the Ministry of Civil Aviation is
expected to set up Civil Aviation Authority (CAA), an independent
regulator and support the growth of the industry. Some of the functions of
CAA are proposed as: (i)
Set
the standards for various agencies and personnel of civil aviation sector (ii)
Issue
license to these agencies and personnel (iii)
Regulate
tariff (iv)
Arrest
unfair trade practices and market dominance through encouragement of entry
and fostering of competition.
The regulatory agency is thus expected to bring operational
discipline in the sector. IV Summing
up Overall,
the current state of Indian aviation industry portrays mixed shades. On
one hand, a significant enthusiasm in the aviation sector is primarily
attributed to the increased number of private players and emergence of
competitive environment. On the other, it is also evident that there is a
need to strengthen infrastructure network by implementing the proposed
projects. The current scenario thus shows that
No doubt that the government has realised the importance of civil
aviation in the growth of the country and it is implementing majority of
Naresh Chandra Committee’s recommendations to reform the sector. The
sector is now expected to grow at a rate of about 20 per cent per annum
for the next four years and the growth would depend on the speed and
efficiency of reforms in the sector. Lack of airport infrastructure, high
prices of aviation turbine fuel (ATF)
and high level of government control are the major factors constraining
the growth of the domestic aviation industry. Further, it has to be
recognised that even though the sector is on it’s take off stage, it
lags far behind the international standards. According to International
Air Transport Association (IATA), the aspects like enhanced safety,
cost-effective improvement of infrastructure, reasonable taxation and
effective use of technology to simplify the procedures, should be placed
on the priority basis.
It
is inevitable for Indian Aviation sector to match pace with global
developments in the industry. Certainly, we have begun in that direction.
The new comprehensive civil aviation policy and Civil Aviation Authority (CCA)
are expected to make the sector more market oriented. A wise
policy-making, timely implementation of projects coupled with
public-private participation are the major ingredients that would lead to
orderly growth and expansion of the sector. Highlights of Current Economic Scene AGRICULTURE The
country’s seafood exports would suffer in financial year 2005-06 because
an Cashew kernels and cashew nut shell liquid export suffered in the first half of the current financial year 2005-06, though marginal increase in the value realization was witnessed. During April-September of 2005-06 total cashew kernels exports dropped by around 13 per cent to 59,627 tonne from 61,724 tonne in the same period last year. Total value realization was Rs 1343.27 crore, which was Rs 1240.4 crore last year. This fall in volume of the exports is attributed to the withdrawal of the export subsidy; consequently exporters have preferred to park their products in domestic market rather than sending abroad. Marine
Products Development Authority of India (Mpeda) has planned joint
programmes with INDUSTRY AutomobilesThe Union Cabinet has decided to join the 1998 Agreement on Global Technical Regulations (GTR) for Motor Vehicles, which calls for harmonisation of standards relating to safety, environment, energy and anti-theft in automobiles. The move has been welcomed by the auto industry since it will make export of vehicles easier by facilitating equalisation of standards across markets. INFRASTRUCTURE
Overall The
Union Cabinet Committee on Economic Affairs (CCEA) has sanctioned
clearance for setting up of the India Infrastructure Finance Company
Limited (IIFCL) as well as the National Investment Fund (NIF). Power Certain
new clauses have been inserted in the Income Tax Act that will provide
relief to power companies, more specifically to Ratnagiri gas and power
private limited (RGPPL), the new avatar of Dabhol power company. As per
the amendment, the company would now be eligible for capital gains tax
exemption on receipt of grants from the erstwhile foreign promotes towards
settlement of dues and any income arising from transfer of capital assets
from the foreign promoter to RGPPL would also be exempt. Steel
The Cabinet Committee on Economic Affairs (CCEA) has given its approval to the National Steel Policy (NSP). The policy envisages augmenting the indigenous steel production to over 100 million tonne per annum by 2019-20 from the current level of 38 million tonne per annum, implying a compounded annual growth rate of 0.3 per cent per annum. Coal
ONGC (the country’s largest producer of natural gas) and CIL (the country’s largest coal producer) have signed a MoU for coal gasification, with plans to acquire mines abroad. The two, in a 50:50 joint venture, have plans to set up underground coal gasification stations by 2009, with an estimated investment of $15.32 million (Rs 75 crore) for each station. Additionally, the power plant will require an investment of Rs 600 crore. Underground gasification of coal into methane gas would help to convert unminable reserves into commercially usable fuel for industries. Aviation
The government has amended income tax laws to permit withholding tax exemption to airlines that have plans to acquire or lease aircraft before 1st April 2006. This would provide airline companies an incentive to expedite their proposed expansion plans, given that withholding tax can jack up fleet acquisition costs by as much as 40 per cent. RoadsNorth-South-East-West
(NSEW) - the second phase of National Highways Development Programme (NHDP)
- that consists of four-laning of national highways is likely to miss its
December 2007 deadline and may end only by December 2008 or even later.
The main reason for this delay is cited to be a long lull in awarding of
contracts – out of a total of 197 projects under NSEW 54 are yet to be
awarded and 101 projects are still at various stages of completion. INFLATION
The annual point-to-point inflation rate based on wholesale price index has gone down to 4.49 per cent during the week ended October 22, 2005 from 4.71 per cent registered during the previous week. The inflation rate was at 7.44 per cent in the corresponding week last year.
The WPI in the week under review has remained unchanged at 197.7 at the previous week’s level (Base: 1993-94=100). The index of primary articles’ group has declined marginally by 0.1 per cent to 196.7 from the previous week’s level of 196.9, due to a decline in the price indices of food articles. The lower prices of food articles are attributed to the decline in the prices of fruits and vegetables, maize, poultry chicken, bajra and ragi . The index of ‘fuel, power, light and lubricants’ group has also declined a tad by 0.1 per cent to 314.7 from the previous week’s level of 315. The index of manufactured products’ group constituting the maximum of 63.7 per cent of total weight, has risen a bit by 0.1 per cent to 172 from 171.8 of the previous week’s level, primarily due to increase in the prices of food products, ‘wood and wood products’, ‘chemical and chemical products, base metals and ‘machinery and machine tools’.
The latest final index of WPI for the week ended August 27, 2005 has been revised upwards; as a result both, the absolute index and the implied inflation rate moved up to 195.5 and 3.33 per cent instead of the provisional levels of 194.9 and 3.01 per cent, respectively.
Overall,
the rate of inflation has now gradually started firming up due to the
reducing impact of high base effect coupled with rising prices of food
articles and minerals under the group ‘Primary articles’ in the last
couple of weeks. The hike in the prices of petroleum products by the
government, which has been effective from September 6th, and its
consequent spiralling effects on the related sectors like transport, has
also been partly responsible in stimulating inflationary pressures on the
economy. However, the Reserve Bank of India has assured in it’s Mid-Term
Review 2005-06, that it would keep a close watch on inflationary movements
in the near future and if necessary, would use fiscal and monetary
measures in order to contain the same. BANKING RBI has asked the banks to consider the advantages of hallmarked jewellery, while fixing the interest rates and margins on loans against such jewellery. In a notification to scheduled commercial banks, the RBI pointed out that hallmarking of gold jewellery ensures the quality of gold used in the jewellery as to caratage, fineness and purity. Banks will find granting of advances against the security of such hallmarked jewellery safer and easier. The RBI expects that preferential treatment of hallmarked jewellery is likely to encourage practice of hallmarking, which will be in the long-term interest of consumer, lenders and the industry. Currently, it is largely the public sector banks and co-operative banks that offer loans against gold. The large demand for loans against gold jewellery is coming from rural areas. Off late co-operative banks and a few public sector banks are targeting the rural areas, where traditional money-lenders remain very active. The interest rates on advances against gold ornaments and jewellery range from 11.75 to 12.25 per cent for a demand loan and 12.75 per cent for a term loan. The
RBI is keeping a close watch on the balance sheets of banks, namely,
Janakalyan Sahakari Bank, the Parivartan Bank and Care Co-operative Bank
which are faced with the asset liability mismatch because of high cost
fixed deposits (FDs) made 5-7 years ago. These banks had offered FDs to
their customers in 1999-2000, having tenure of 5-7 years at interest rates
ranging from 10-12 per cent. This occurred, when the overall lending rates
in the banking system hovered in the range of 12.5 – 13.5 per cent. The
scenario now is significantly different. Interest rates have declined by
nearly half. PUBLIC
FINANCE The centre’s total expenditure in the first half of financial year 2005-06 is 41.0 per cent of budget estimate (BE). It is almost equal to that during the corresponding period of previous year at 40.9 per cent and seems to be well within the limits decided in the budget. Whereas as far as total receipts are concerned, they stood at mere 35.0 per cent during the period, lower than 41.8 per cent in the corresponding period of the previous year. On the positive side, the net tax revenue rose noticeably to 35.2 per cent of BE in April-September 2005, higher than 33.3 per cent in the same period of the previous year. Plan expenditure has also registered healthy rise of 41.4 per cent of BE during the first half of the financial year as compared to 36.6 per cent during the same period of the previous year. Besides this, noticeably non-plan expenditure has fallen to 40.9 per cent this year during April-September from 42.8 per cent in the same period of the previous year. The fiscal deficit is 55.5 per cent of BE during April-September 2005 compared to 38.7 per cent of BE during the corresponding period of the previous year. This has mainly resulted from lower collections through non-debt capital receipts and rise in plan expenditure. Thus, the highlight of government finances for April-September 2005, have been rise in tax collections, fall in non-plan expenditure as part of expenditure management. Fiscal deficit seems likely to rule within the budgetary limit at the end of the financial year. In policy issues, the government is intending to impose a cess so as to form a social security fund for around 37 crore unorganized sector workers who comprise almost 92 per cent of the country’s workforce. The government has approved the proposal to operationalise the National Investment Fund (NIF) that will provide funds for social sector projects. The NIF will use 75 per cent of its corpus for the social sector, while leaving the remaining 25 per cent to revive sick PSUs. The
government is also likely to bring about an ordinance within short time to
provide relief to loss-making exporters who are collectively facing an
additional tax demand of Rs 4,000 crore. Capital
Markets Primary
Market Piramyd
Retail limited offered five lakh equity shares of Rs. 10 each with price
to be determined via 100 per
cent book building process. The issue was open for subscriptions between
November 10 to November 16. Secondary
Market The
month of November started with a bang with the BSE Sensex closing the week
on a positive note. The Sensex witnessed a hefty gain of 387.45 points in
three trading days. The markets were open only for the first three days.
On Tuesday there was Muhurat limited to an hour. During the week under
review, FIIs and mutual funds
were net buyers. Among
the sectoral indices of BSE the highest gains have been registered by BSE
METAL followed by BSE CD. While BSE sensex rose by 387 points BSE mid-cap
and small-cap rose by 156 points and 198 points respectively.
The
combined average daily turnover of both BSE and NSE since October 5 has
jumped to Rs. 9,066 crore and FII gross activity was 32 per cent at Rs.
2,828 crore. Normally, the share of FII averages to 20-22 per cent of the
total trading activity in the market. The
BSE market capitalisation has increased to Rs. 21,31,384 core on November
01,2005 from Rs. 14,12,991 crore on November 12,2004. BSE sensex has
increased by 1980.09 points to 7944.1 on November 01,2005 from 5964.1 on
November 12,2004. Tjhe Nifty also increased by 513.8 points to 2386.75 on
November 01,2005 from 1872.95 on November 12,2004. Derivatives
Ahemdabad
Stock Exchange has sought for the Futures and Options segments trading
rights from Sebi, in order to ramp up its trading capacity in derivative
market. ASE will be incorporated as Limited Company on December 14,2005. Government
Securities Market Primary
Market The
government has announced the sale of 7.49 per cent 2017 and 7.40 per cent
2035 for notified amounts of Rs 5,000 crore and Rs 3,000 crore,
respectively, on November 8. The
yields on 91-day treasury bills auctioned during the week increased from
5.57 per cent to 5.70 per cent. Secondary
Market The
US Fed rate has been hiked by 25 basis points to 4 per cent. The Inflation
declined marginally to 4.49 per cent for the week ended October 22 from
4.71 per cent in the previous week, mainly due to fall in prices of
essential food items and industrial fuel although manufactured products
became costlier. Despite
the decline in inflation rate, the weighted average yield for 8.07 per
cent 2017 increased from 7.17 per cent on October 28 to 7.19 per cent on
November 4. Foreign
Exchange Market The
six-month forward premia has eased from 0.40 per cent on October 28 to
0.36 per cent on November 4. The
rupee-dollar exchange rate has depreciated from Rs 45.09 on October 28 to
Rs 45.41 on November 4. Commodities
Futures As
a part of the on-going transformation of commodities trading, the National
Spot Exchange has started the electronic networking of all the 290
agricultural markets in The
latest directive from Forward Markets Commission (FMC) seeks to make it
mandatory for a market participant to indicate physical delivery intent at
least five days before maturity of the contract. However,
the trader may lose the opportunity to take full advantage of the
price discovery process through the online national commodity exchanges .
This directive comes into effect for all the contracts launched after
November 01,2005. Following
the announcement of demat facilities by NCDEX and MCX, trading in
commodity futures has witnessed a huge increase. The number of accounts
with depositary services-NSDL and CDSL- has crossed 5,000 mark, this has
resulted in a reduction of transaction cost for traders. INSURANCE
The
government has launched a health insurance scheme for 3 lakh handloom
weavers and allied workers and their families across the country in
collaboration with ICICI Lombard. For subscribing to the scheme, the
weavers will have to contribute Rs.200, while the government will
contribute Rs.800 through the office of development commissioner. CREDIT
RATINGS Crisil
has reaffirmed the ‘FA-/Stable’ rating assigned to the fixed deposit
programme of Bhartiya Samruddhi Finance Limited (BSFL). The reaffirmation
is based on BSFL’s well-qualified and experienced management, its track
record and reputation in the micro-finance business, adequate financial
flexibility and reasonable capital position. Crisil
has reaffirmed ‘AAA/Stable’ rating assigned to the Rs. 1 billion
subordinate debt bonds programme of ABN AMRO Bank. This reaffirmation is
based on an outstanding counter-party rating of ‘ AA-/Stable/A-1+’
from Standards and Poor’s which is based on the bank’s very strong
franchise in the Netherlands, U.S. Mid-west and Brazil, well-diversified
business mix, and healthy asset quality indicators. Following
the Nicholas Piramal India Limited’s (NPIL) acquisition of Avecia
Pharmaceuticals (Avecia), UK, Crisil has reaffirmed its outstanding rating
of ‘P1+’ assigned to NPIL’s Rs. 1 billion short-term debt programme.
This acquisition is in line with NPIL's strategy of expanding its presence
in the global custom research and manufacturing space. NPIL benefits from
the acquisition by way of access to Avecia's strong customer base, healthy
deal pipeline, and internationally approved manufacturing facilities. Crisil
has reaffirmed the ratings ‘P1+’, ‘AAA/Stable’ and
‘AAA/Stable’ assigned to the Citibank’s Rs. 10 billion certificate
of deposits programme, Rs. 2.25 billion subordinate bond issuance and Rs.
950 million subordinate bond programme, respectively. The reaffirmation of
ratings on Citibank N.A. (Citibank) are based on an outstanding
counter-party rating of "AA/Stable/A-1+" from Standard and
Poor's which reflects the bank's strong earnings, well-diversified
business operations, stringent cost management, and leadership position in
the credit cards and investment banking businesses. Crisil
has reaffirmed the ‘AAA/Stable’ rating assigned to the Rs. 2 billion
subordinate bond programmes of The Hongkong and Shanghai Banking
Corporation (HSBC). The assigned rating is based on the outstanding
counter-party foreign currency rating of ‘AA-/Stable/A-1+’ for HSBC
Asia-Pacific from Standard and Poor’s (S&P). This S&P rating
reflects strong parentage, satisfactory asset quality, stable funding base
and good financial profile of HSBC Asia-Pacific. Crisil
has withdrawn the ‘AAA (So)’ rating assigned to ICICI Home Finance
Limited’s pass through certificates- Indian Residential MBS Trust Series
II and III, as the PTCs have been extinguished and all investor
obligations have been fully met. CORPORATE
SECTOR Godrej
Consumer products Limited has acquired Keyline Brands Limited, a The shipbuilding division of Chowgule and Company has received overseas orders to build 12 ocean going cargo vessels of 4450 dead weight tonne each with an estimated cost of Rs 400 crore. Information technology major, Wipro, has increased its investments in its subsidiaries, Wipro GE Medical System and WeP Peripherals. The company has invested over Rs 25 crore in these subsidiaries. South Korean consumer electronic giant LG is setting up its mobile phone and DVD player manufacturing unit at the Ranjangaon Industrial Estate near Pune at a cost of Rs 500 crore. Mahindra and Mahindra Limited would transfer its light commercial vehicles business to Mahindra International Private Limited for Rs 48.4 crore. Maruti Udyog Limited has reported a 14.5 per cent rise in the overall domestic sales in October 2005 to 50,308 units. Ashok Leyland is one the edge to form a joint venture with a Chinese firm to meet growing domestic demand for light commercial vehicles. Bharat
Petroleum Corporation Limited will soon invest Rs 2000 crore in a new
120,000 barrel per day refinery in central Berger Paints has registered 26 per cent rise in sales to Rs 553.4 crore and a 73 per cent jump in net profit to Rs 36.8 crore during April-September 2005. Fast moving consumer goods (FMCG) major, Hindustan Lever Limited (HLL), has posted a net profit of Rs 326 crore for the third quarter ended September 2005. Domestic FMCG sales has grown up by 16 per cent to Rs 2383 crore during July-September 2005. Aurobindo Pharma has registered a 19 per cent rise in the net sales to Rs 319.5 crore and 42 per cent increase in the net profit to Rs 3.6 crore for the quarter ended September 2005. Jindal Stainless has reported 8 per cent rise in its net profit to Rs 44 crore for the quarter ended September 2005. Glenmark Pharmaceuticals has suffered a 52 per cent fall in net profit at Rs 13.8 crore during July-September 2005. Hindustan Petroleum Corporation has reported a net loss of Rs 22 crore for the quarter ended September 2005 as compared with a profit of Rs 294.3 crore in the same period previous year. Hindalco Industries Limited, a flagship company of Aditya Birla group, has suffered a 7 per cent decline in its pet profit at Rs 276.5 crore for July-September 2005. LABOUR
The government is planning to introduce the bill called ‘older Persons (Maintenance, Care and Protection) Bill’ in the winter session of parliament, which will allow old parents to reappropriate properties willed to their wards if they fail to take care of them. The proposed legislation aims to provide a trampoline for elders if they are neglected. It may further also provide for old age pension apart from the provision of at least one old age home in each district and specific health provisions for the elderly. It thus, addresses financial, housing, clothing and companionship requirements of the elderly. It proposes to make it obligatory on the part of families in case the older person lives below poverty line. It also proposes to set up tribunals headed by sub-divisional magistrates, where older persons can apply to claim maintenance from their children including adopted or step children and grandchildren. EXTERNAL
SECTOR The
target plus scheme, which is a reward scheme for exporters, may be
abandoned by the government due to its non-compatibility with the WTO
norms. The two other schemes presently being scrutinised by a two-member
committee of officials may be spared as they do not violate WTO norms and
the flow of benefits to the exporters is relatively more transparent. As
per the target plus scheme, exporters achieving a quantum growth in
exports would be entitled to duty free credit based on incremental
exports, which is substantially higher than the general actual export
target fixed. Rewards were granted based on a tiered approach. This scheme
is incompatible with WTO norms as it is based on past performance. According
to an Exim Bank study, the north-eastern region accounts for over
three-fourth of total handicraft production, however, its share in It
is almost certain that INFORMATION
TECHNOLOGY
Mphasis BFL Group has posted a net profit of Rs.40.16 crore, up by 27.4 per cent for the quarter ended September 30, 2005, compared with Rs.31.51 crore for the corresponding quarter of the last year. Online
sales in last three weeks on account of Diwali & Eid festival recorded
a significant rise of 117 per cent to Rs.115 crore this festive season
against Rs.53 crore last festive seasons according to Internet &
Mobile Association of India (IAMAI). Of the 32 million internet users in India’s
largest software exporter TCS has bagged the country’s biggest ever
outsourcing deal worth $848 million (£486 million) 12-year contract from
UK’s insurance and pensions major Pearl Group Ltd. to provide non-voice
processing of life insurance and pension policies. This is also the
largest manpower transfer deal done by any Indian BPO company. TCS will
form a subsidiary in
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