Current Economic Statistics and Review For the Week 
Ended January 28, 2006 (4^th Weekly Report of 2006)

Theme of the week:

Tourism in India: Issues and Prospects*

I

  An Overview

In the current optimistic macroeconomic scene with the economy growing at a robust near 8 per cent, the tourism sector has emerged as one of the fastest growing sectors in India (The World Tourism Organisation has ranked India fifth among the World’s tourists hot spots). Undoubtedly, a strong linkage between economic development and tourism sector growth is reflected in terms of increasing employment generation across a wide spectrum of skills and valuable foreign exchange earnings.

  India ’s relative share of travel and tourism sector in GDP and employment is depicted in Table 1.

The sector accounts for 2.5 per cent of GDP as against 4.2 per cent of the world average and it’s contribution to total employment in the country is near 3 per cent, which is almost at par with the world average. Moreover, India ’s contribution of travel and tourism to exports, receipts and especially to employment in the world is shown in Table 2:

India ranks second after China in terms of number of persons employed in travel and tourism and creates more jobs per million rupees of investment than any other sector of the economy. According to Ministry of Tourism, for every Rs 10 lakh invested in any tourist related activity, it creates 47 direct jobs and 89 indirect jobs. Interestingly, the agriculture and manufacturing sector with the same amount of investment can generate only 44 and 12 indirect jobs, respectively. This is because the tourism industry has a multiplier effect and has a potential of generating employment from craftsmen to tourist guides to drivers and interpreters, the list is endless. The Tenth Five-Year Plan has envisaged creating of 3.6 million jobs per year in the travel and tourism sector (both domestic and international). In terms of tourism exports and receipts too, the sector has placed India on a satisfactory note by attaining 31^st and 29^th ranking in the world, respectively.

II

Performance of Tourism Sector in India in Recent Past

 The main performance indicators of tourism sector are inbound and outbound tourist traffic and foreign exchange earnings from the sector. This millennium began with somewhat depressed scenario for the tourism sector. The foreign tourist arrivals declined by 4.2 per cent in 2001 and thereby there was a decline in foreign exchange earnings by 4 per cent. (Table 3). There was an overall slow down in the tourism activity in 2001 against the backdrop of a down-turn in the world economy. Further, the setback to tourism sector in 2002 was mainly on account of a series of unfortunate events such as September 11, 2001 terrorist attack in the US , followed by the attack on Indian Parliament by terrorists. Another negative factor was the prolonged border tension with Pakistan . Besides, the adverse travel advisories issued by many countries to their citizens, the US led war against Afghanistan and prolonged riots in Gujarat also contributed to a significant slowdown in foreign tourist arrivals in the country by 6.3 per cent in 2002 over the previous year. As a result, the foreign exchange earnings dropped by 4 per cent. Unfortunately, increased domestic tourist activity fell short for bringing any boost to the sector. 

The year 2003 was characterised by a turnaround in foreign tourist arrivals and foreign exchange earnings by around 15 per cent and 21 per cent, respectively. The revival of tourism in 2003 was fuelled by a spurt in business travelling. Growth in services sector combined with increase in foreign trade led to more foreigners visiting the country. According to travel agencies, business travellers accounted for between 50 and 60 per cent of total tourist inflows in 2003. The upsurge in foreign tourist traffic is reflected in a sharp rise in occupancy level of hotels in most of the tourist centres. Besides business travels, increase in air seat capacity and direct connectivity between India and ASEAN countries such as Singapore , Malaysia , Indonesia and Thailand had also contributed to the buoyancy in tourism. At the same time, a major thrust was given to tourism by allowing inbound charters to land at all airports in the country. Moreover, it may be recalled that the government had extended infrastructure status to tourism in the Budget for 2003-04, thus making it accessible to cheaper long term funds to help finance tourism-related infrastructure. Further, the year 2004 showed continued buoyancy in foreign tourist arrivals by 26 per cent, which crossed 3 million mark. Correspondingly, the foreign exchange earnings also increased considerably by 35 per cent.

Performance of Tourism Sector in 2005

The foreign tourist arrivals have grown by 13 per cent in 2005 registering 3.9 million foreign tourists visitors in the country. Similarly, foreign exchange earnings increased by 20 per cent to US $5.73 billion as compared to US $ 4.76 billion in 2004. In rupees terms, the income from foreign tourist arrivals increased to Rs 25172.2 crore from Rs 21603 crore, recording a growth of 16.5 per cent in 2005.

According to the 6^th Annual India Tourism & Heritage Summit, Ministry of Tourism, organised by CII, India ’s growth in tourism market has far outstripped the world average increase in 2005 from 2004. In 2004, India ’s tourism industry grew by 24 per cent in volume terms and by 26 per cent in value terms. From 3.9 million in 2005, the government expects tourist arrivals to touch 4.4 million in 2006, 9.9 million by 2011 and 15.9 million by 2014.

India ’s  Balance of Payments with respect to Travel and Tourism

It is essential to focus on India ’s net travel receipts so as to underline net gains from travel and tourism sector. Travel receipts are principally determined by the number of tourists visiting India during the period in question, although factors like social and political environment in India and abroad, cost conditions, etc, also have a role to play. Even though gross receipts from travel have shown a steady rise except for the year 2001-02, (when tourism industry was hit by terrorist attack in the US in 2001), there has been a deceleration in the rate of net receipts. This is because of a rise in payments under balance of payments account. This could be attributed to the fact that more and more of Indians are taking up foreign travel. In 2001-02, there was a fall in number of tourists visiting India and also a fall in gross and net earnings on this account (Table 4).

2000-01

Further in 2002-03, the situation worsened and the net travel receipts stood negative (deficit) at US $ 29 million as against US $ 123 million in previous year. Due to the revival of tourism sector in 2003-04, travel receipts, increased substantially by US $ 2825 million (by 52 per cent) as compared to 5.6 per cent increase registered in 2002-03. Due to a lower rate of increase in the travel payments as compared to the rate of increase in the travel receipts during 2003-04, the net receipts stood considerably high at US $ 1435 million. This turnaround not only bolstered overall invisible inflows, but also underlined a sharp revival in tourism interest in India .

It is imperative to note that in line with sustained growth in outbound tourist traffic in 2004-05, the rate of increase in travel payments (53 percent) exceeded that of travel receipts (30 per cent) in 2004-05. Consequently, the net travel receipts in 2004-05 stood lower at US $ 985 million as compared to US $ 1435 million in the previous year. In 2004-05, while business travel continued to account for a major share of travel payments (about 60 per cent), there was a rebound in the share of leisure travel by Indians (21 per cent) (RBI Annual Report, 2004-05).

III

Strategic Measures and Polices in Tourism Sector

The improved performance of tourism sector in last three years can be attributed to various initiatives taken by the government of India . In order to develop tourism in a systematic manner and to harness its direct and multiplier effects for employment and poverty eradication in an environmentally sustainable manner, the National Tourism Policy was formulated in 2002.  Broadly, the policy attempts to: -

1.      Position tourism as a major engine of economic growth;

2.      Provide impetus to rural tourism;

3.      Focus on domestic tourism as a major driver of tourism growth;

4.      Position India as a global brand to take advantage of the burgeoning global travel trade and the vast untapped potential of India as a destination;

5.      Acknowledge a critical role of private sector with the government working as a pro-active facilitator and   catalyst;

6.      Create and develop integrated tourism circuits based on India ’s unique civilization, heritage, and culture in partnership with states, private sector and other agencies.

Keeping view the basic principles and guidelines of the Tourism Policy, the Ministry of Tourism has been implementing the following schemes/programmes during the 10^th Five Year Plan:

1. Scheme for Product / Infrastructure and Destination Development

The focus under this scheme is on improving the existing products and developing new tourism products to world-class standards. For infrastructure and product development, the Ministry of Tourism has provided central financial assistance to the state governments during the 9^th Five-Year Plan, which resulted in strengthening of infrastructure development in the country. The scheme has been restructured during the 10^th Five Year Plan to meet the present day infrastructure requirements. The past experience had been that a large number of small projects had been funded under the Scheme, spreading the resources very thinly, which at times did not create the desired impact. The focus in the Tenth Plan has been to fund large projects of infrastructure or product development in an integrated manner.

2.  Scheme for Integrated Development of Tourist Circuits

 Under this, the Ministry of Tourism has been extending assistance to states for development of tourism infrastructure. The objective of the scheme is to identify tourist circuits in the country on an annual basis, and develop them to international standards. A tourist circuit is defined as a circular route on which at least three major tourist destinations are located in a way that none of these are in the same town, village or city. At the same time they are not separated by a long distance. Due to a circular route and short distance, it is not mandatory on the part of a tourist to cover them in a sequence. In addition to this, it should have well defined entry and exist points. A tourist who enters at the entry point should get motivated to visit all the places identified on the circuit. The objective of having a tourist circuit is to increase the total number of visits to all the destinations on the circuit. All the activities agreed to by the Ministry of Tourism under this scheme is to be funded on 100 per cent basis i.e. the entire capital cost would be borne by the Ministry of Tourism, subject to the ceiling of Rs. 8 crore.

3. Scheme of Assistance for Large Revenue Generating Projects

It has been recognised that tourism infrastructure projects require huge investments that may not be possible out of the budgetary resources of the government alone. Therefore, it is necessary to bring-in private sector resources to promote large revenue generating projects through public-private partnerships and in partnerships with other government /semi-government agencies. The scheme includes projects like tourist trains, cruise vessels, cruise terminals, convention centres, and golf courses etc., which qualify for assistance.

4. Capacity Building for Service Providers Scheme (CBSP)

In order to cultivate professional expertise in the sector for specialised vocations, an extensive training is required for the workers in the industry. At present there are Food Craft Institutes (FCIs) and Institute of Hotel Management (IHMs) where technical training is being provided to persons for the hospitality Industry. Tourism training is being provided by the Indian Institute of Tourism and Travel Management.  There is a segment of tourism service providers who are engaged in other professions but come in contact with tourists.  These persons are staff at bus/ railway stations, police personnel, immigration staff at airports, coolies, taxi/ coach drivers, staff at monuments, guides etc., who regularly interact with tourists.  It was therefore felt necessary that they should be given certain inputs, which can improve their behaviour and service skills. Therefore, the scheme includes important areas like training in Health & Personal Hygiene, cleanliness, basic service techniques, cooking techniques, garbage disposal, etiquette and basic manners and basic nutrition values. The India tourism offices, Institutes of Hotel Management, Food Craft Institutes, Indian Institute of Tourism and Travel Management and various academic private training institutions, are providing such kind of training.

5.  Scheme of Rural Tourism

            Almost 74 per cent of the population resides in about 7 lakh villages of India . Across the world, the trends of industrialisation and urban development have had an urban centric approach. This trend of urbanisation has led to falling income levels, lesser job opportunities in the rural areas. Alongside, the stresses of urban lifestyles have led to a counter-urbanisation syndrome, which has led to growing interest in the rural areas. Rural Tourism is one of the few activities, which can provide a solution to these problems. Besides, other factors, which are shifting the trend towards rural tourism are growing interest in heritage and culture, improved accessibility, and environmental consciousness. In developed countries, this has resulted in a new form of tourism of visiting village settings to experience and live a relaxed and healthy lifestyle.

Under this Scheme, thrust is given to promote village tourism as the primary tourism product. Key geographic regions are identified for development and promotion of rural Tourism. The implementation is done through a Convergence Committee headed by the District Collector. Activities like improving the environment, hygiene, infrastructure etc. are covered for financial assistance.

Apart from these schemes, there are number of other schemes those have been undertaken by the government:

(i) Scheme of Financial Assistance to States for Organisation Tourism Related Events;

(ii) Scheme of Central Financial Assistance for Information Technology (IT) Projects;

(iii) Scheme for support to Public-Private Partnership in Infrastructure   Development (Viability Gap Funding);     

(iv)  Scheme of Market Development Assistance (MDA); and

(v) Scheme of Professional Services - Market Research

The Ministry has also launched several schemes like 'Atithi Devo Bhava' and 'Priyadarshini' to give further fillip to tourism industry in the country. The campaign 'Atithi Devo Bhava' was launched on January 19, 2005 as a social awareness campaign aimed at providing the inbound tourists a sense of being welcomed by the country. The components of the campaign are orientation and training to taxi drivers, guides, immigration officers, tourist police and other personnel directly interacting with the tourists. In this, Delhi , Mumbai, Goa, Hyderabad , Jaipur, Agra and Aurangabad were covered in the first phase. Almost 26,000 service providers were given training in these cities. After successful completion of first phase, second phase of the campaign has been launched in November 2005 with the target of training and sensitising 75,000 personnel by the end of next year under the campaign. The Project 'Priyadarshini' has been launched on December 9, 2005 with the aim to bring in women in greater numbers in the core area of Tourism at all levels. Under the project women are being trained to drive tourist taxis. They will also be provided training for self-defence, vehicle repairing and knowledge of other related domain.

The Tenth Five-Year Plan (2002-07)

The Tenth Five-Year Plan (2002-07) aims to enhance India ’s share of international arrivals to at least 0.62 by 2007 from 0.34 in 2002. Recognising the potential of tourism, the allocation to the sector was increased from 0.27 per cent of the total gross budgetary support in the Ninth Plan (1997-2002) to 0.71 per cent in the Tenth Plan (Mid-Term Appraisal of 10^th Five-Year Plan). The Central Plan outlay for the Tenth Plan has been increased to Rs 2,900 crore from Rs 595 crore in the Ninth Plan. In addition to this, substantial investments are planned for rail, road and air transport and urban infrastructure. The Tenth Plan allocations for states/union territories have been increased to Rs 4602.4 crore from Rs 1687.3 crore during the Ninth Plan, a substantial increase of 172 per cent. 

Moreover, the ‘Incredible India’ campaign, which is the brainchild of the Ministry of Tourism, Government of India, focuses on promoting and marketing India ’s numerous unexplored tourist spots. In the past, the Incredible India campaign had focused on attracting large numbers of tourists from abroad. As the international tourists only account for about 8 per cent the total tourists in India , the current campaign targets higher domestic tourist traffic to domestic destinations.

State-wise Performance in Tourism Sector

Different states have performed differently depending upon their respective capabilities to exploit tourism potentials. The budgetary expenditure (capital and revenue) as well as revenue receipts by various states in last couple of years is shown in Annexure A. The states like Kerala, Andhra Pradesh and Jammu and Kashmir have spent higher than others on tourism sector in the year 2004-05. Among these, Andhra Pradesh has strikingly increased it’s expenditure on tourism by 120 per cent in 2004-05 as compared to the year earlier.  Interestingly, with the available data, Andhra Pradesh has topped in terms of revenue receipts from tourism, where as the states like Kerala and Jammu Kashmir, which exhibited heavy expenditure patterns, have lagged much behind. The states like West Bengal and Karnataka have been successful in pulling considerable revenue receipts in the year 2004-05. In spite of smaller geographical stretch, Goa has also drawn good amount of revenue receipts in this same year, especially due to traditionally preferred destination of foreign as well as domestic tourist visitors.

The success of some states, which have been able to attract more foreign as well as domestic visitors is attributed to their cautious attempts to develop tourism industry in terms of better infrastructure and services, improved urban-rural connectivity, extensive tourism marketing and exploring newer areas of tourism.

IV

Newer Areas of Tourism 

Medical Tourism

India has been an attractive destination for medical tourism in the last couple of years, mainly due to low cost treatment and better health services in private health care industry. The government has set a target to rope in 1 million medical tourists by 2010 from current visitors at around 10,000 to 11,000. If the foresaid target is met, the country would gain at least US$ 5 billion as foreign exchange. According to Confederation of Indian Industry (CII), India has the potential to attract 1 million tourists per annum provided it leverages its competitive edge, especially its cost advantage, which is only 1/5th of costs in the West. For e.g. a heart surgery in the US costs US$ 30,000 while it costs US$ 6,000 in India . Bone marrow transplant in the US costs US$ 2, 50,000 while it is US$ 26,000 in India . In addition to this, India is unique as it offers holistic medicinal services. With yoga, meditation, ayurveda, allopathy, and other systems of medicines, India offers a unique basket of services to an individual that is difficult to match by other countries. Also, clinical outcomes in India are at par with the world’s best centres, besides having internationally qualified and experienced specialists.

A case study done by CII has revealed that Thailand with a population of 60 million has been successful in attracting 1 million health tourists in 2003, due to the development of world-class infrastructure. Therefore, India should also replicate the Thai model and capitailise on its inherent strengths to become a world player in medical tourism.

Adventure Tourism

India as an adventure tourism destination has grown in popularity, both in domestic as well as international markets. According to the Adventure Tour Operators Association of India (ATOAI), at present, about 10 lakh tourists could probably be classified as adventure tourists. Of this, about 3 to 4 lakh are foreigners and 6 to 7 lakh are Indians. At present, the total earnings from both these tourists amount to over Rs 100 crore. The average spending of a foreign tourist is roughly $1,500, i.e. Rs 67,000 approximately, while Indians spend about Rs 25,000 to 30,000. The mountaineering, treks along the Himalayan range, canoeing, kayaking are the popular sports among foreigners, while trekking and rafting are preferred by Indian adventure seekers. However, according to the President of ATOAI, the adventure tourism in India is largely untapped potential and given the right impetus, India can attract half a million foreign adventure tourists and the domestic adventure tourism market can see a 10 –fold growth in the next five years. 

Wildlife Tourism   

India has vast variations in geography, climate and vegetation. As a consequence, there are exciting diversity in habitat and wildlife. Wildlife tourism is an important sub-segment of Ecotourism. There are approximately 485 sanctuaries and 87 national parks in India . However, it is important to promote wildlife conservation campaign in order to attract tourists from all over the world.  Despite natural richness in terms of land resource and plenty of forests, India has not been able to exploit these resources optimally. 

Cruise Tourism            

The government has constituted a high-power Steering Group to formulate Cruise Shipping Policy in the country. The recommendations of this Group include formation of Working Groups to look into issues like – immigration, customs clearances, quarantine restrictions, identification of ports, infrastructural facilities, connectivity, taxation issues, tourism related issue and cabotage to develop cruise shipping policy for India . On the Eastern part of the country, Tuticorin Port and Chennai Port , have been identified.

Eco-Tourism

The National Eco-Tourism Policy and Guidelines aim to preserve, retain and enrich natural resources and to ensure regulated growth of Eco-Tourism with its positive impacts on environmental protection and community development. Under these guidelines, the government has prioritised several projects in Himachal Pradesh, Uttaranchal and Uttar Pradesh in 2005-06.

Cosmetic Tourism

The Cosmetic tourism has increasingly captured attention of foreign aspirants, who have very high level of awareness with respect to beauty, fitness and thereby various cosmetic procedures. India , in this context, offers reasonable services standards and pricing advantage. A cosmetic procedure in India can be completed at one-third the rates in the US .     The most sought-after services by foreigners are laser, botox and fillers. Americans are the biggest clients as cosmetic surgery is a luxury in the US , followed by tourists from Eastern Europe, Far East and even Japan .

V

Tourism Potential in India : Key Issues in its Exploitation

Although India ’s overall position in tourism is quite promising, there are certain areas, which need further attention in order to exploit untapped potentials in the sector. Far smaller countries in the Asian region with just a fraction of India ’s tourism potential, like Thailand , Hong Kong and Sri Lanka record much higher figures of foreign tourist arrivals. As per the World Tourist Organisation, Thailand received 11.6 million tourists, Hong Kong received 21.8 million and Sri Lanka could attract 5 million in 2004, while India received merely 3.4 million visitors. Moreover, according to CII, tourism contributes only 2 per cent of India ’s GDP as compared to the global average of 3.8 per cent. Given India ’s geographical stretch, rich heritage and heterogeneity of cultures, it has a lot to offer to both the foreign as well as domestic tourists.    

 Some of the issues, which require immediate attention, are:

1.Tourism Infrastructure

A strong linkage between infrastructure building and tourism development necessitates improvement not only in tourism-specific infrastructure, but also in general physical infrastructure. The most crucial aspect is to improve roads, rail, air links and airports. With not a single airport confirming to the international standards, the sorry state of our airports is enough to put off any foreign traveler. The Ministry of Tourism is in agreement that the major constraint faced in tourism sector at present is at the airport. There is heavy passenger overflow during peak hours in Mumbai and Delhi airports and the only solution to this problem is the modernisation of these two airports at the earliest and thereby capitalise on India being the third fastest growing domestic aviation industry in the world, posting a growth of 23 per cent in 2004-05. Similarly, other physical links like road and rail must also improve towards developing new and extended tourism routes.        

The Tenth Plan mainly focuses on creation of world-class infrastructure as its one of the major objectives to boost tourism. During the Tenth Plan, the existing tourism infrastructure schemes were merged into two major schemes – Integrated Development of Tourism Circuits and Product Infrastructure and Destination Development. The projects are fully funded by the central government and the state governments are suppose to provide land and external infrastructure including the responsibility of the maintenance of the assets created. Of the 1310 tourism projects carried forward into Tenth Plan, 740 remained to be completed at the end of 2003-04. A new scheme of Tourism Infrastructure Development Fund is also under consideration in the Plan. No doubt some improvement of the road infrastructure has been accomplished through the Golden Quadrilateral and North-South and East-West projects covering the national highways. However, their connectivity to tourist destinations and circuits and cultural and heritage sites has not yet been given priority. Out of 26 world heritage sites in the country, 20 sites deserve improved road connectivity to attract tourist traffic. Moreover, an integrated plan, including special tourist trains needs to be offered for improving connectivity.

Another major area of concern is hotel accommodation. Though accommodation infrastructure has grown from 8000 rooms to 85,481 rooms in last 30 years, according to WTTC estimates, India needs 1,60,000 rooms to accommodate the projected tourist arrival of 5.89 million by 2010 and 3,00,000 rooms by 2020 to meet the projected tourist arrivals of 8.9 million. Our Southeast Asian competitors like China , Thailand , Malaysia and Singapore have higher number of rooms. The number of hotels set up under the budget category increased from 890 hotels with 35,888 rooms in 1999 to 1,285 hotels with 50,306 rooms in 2003. Due to higher occupancy levels, the additional demand for budget rooms for the next five years is placed at 50,000 rooms. It has been experienced that the room rates have also increased due to higher demand for accommodation. They have risen considerably from 11 per cent to 42 per cent across eight leading cities in India in 2005 as compared to the previous year (HVS International Research).   

The high cost of land, its availability and multiple requirements of permissions /clearances make establishing hotels a costly and cumbersome affair. Expansion of hotel rooms on the scale required involves massive investments. For example, construction of 160,000 rooms by 2010 at an average cost of Rs 30 lakh per room would require an investment of Rs 48,000 crore over the next five years. States wishing to attract such investment must take special efforts to allocate land.

2. Infrastructure Status to Tourism Industry and Tax Rationalisation  

The Hotels Association of India (HAI) is planning to seek ‘full infrastructure’ status for tourism sector at par with other sectors like airports, railways and bridges to reap the benefits of being an infrastructure industry. The benefits include availing of tax holiday and thereby inducing grater investment in the sector. The tax structure applicable to tourism sector compares unfavourably with that in other countries of the world. At present, the cumulative average tax in India is about 30 per cent of the total hotel bill which includes luxury tax, food sales tax and beverage sales tax, while the tax rates in other Southeast Asian countries are 1 per cent in Singapore, 3 per cent in Hong Kong, 5 per cent in Malaysia and 7 per cent in Thailand. The travel industry is also calling for a rationalisation of service tax on international tickets from the current 1 per cent to 0.25 per cent.  

The Ministry of Tourism has undertaken studies on taxes levied by the state/central governments in the Indian tourism sector and the impact of civil aviation policies on tourism in the country. The study on taxes has highlighted the problem of high rate of taxation and multitude central and state level taxes leading to high cost of packages. The study has recommended rationalisation of taxes like expenditure tax, service tax, customs duty and taxation of Aviation Turbine Fuel (ATF) and a need for introduction of new incentives to increase tourism expenditure and promotion of investment in the industry. The Ministry has also taken up the issue of rural tourism to get  same benefits as agriculture.  

3. FDI in Tourism

Currently, 100 per cent FDI is permissible in the sector (Ministry of Disinvestment). Automatic route is available upto 51 per cent provided foreign technology agreements covers:

i) upto 3 per of the capital cost of the project is proposed to be paid for technical and consultancy services including fees for architects, design, supervision, etc.
ii) upto 3 per cent of net turnover is payable for franchising and marketing/publicity support fee, and

iii) upto 10 per cent of gross operating profit is payable for management fee, including incentive fee.

According to a recent Finance Ministry paper seeking Asian Development Bank (ADB) funds for tourism infrastructure projects, FDI could result in an ‘income-multiplying effect’ in the sector. However, concessions and incentives available to investors in other sectors must be extended to the tourism sector as well. The paper added that, tourism activities must be included in the provisions of the bilateral investment treaties and double taxation avoidance agreements that India enters into.

4. Private Investment

Since tourism is a multi-dimensional activity and typically a service industry, private sector and voluntary organisations become active partners to attain sustainable growth. Overall, a significant amount of private investment will be required in the key destinations to build hotels, retail outlets, transportation services, leisure centres like mini golf courses, bowling alleys, entertainment parks, theatres, health spas, etc. These facilities are already mushrooming in other major tourism and metropolitan areas in India . However, many existing barriers to private investment in setting up such facilities are not removed. For e.g. land acquisition prices are too high, often exceeding the norm of 10-15 per cent of project cost. Strict Floor Area Ratio (FAR) and Floor Space Index (FSI) regulations prevent industry from quickly recouping land costs. Red tape leads to an average project clearance time of three years, too long by any standards. Lack of legislative support and long-term investor-friendly policies have added to constraints. Therefore, it is essential to overcome these structural bottlenecks in order to boost private sector investment in the sector.

5. Skilled Manpower 

It is evident that tourism sector has a lion’s share in providing employment to large section of skilled and unskilled workers. However, it is equally vital to have trained manpower in order to raise quality standards of the services in terms of greater sophistication and to bring in professionalism in the sector. For e.g. knowledgeable tourist guides, interpreters, receptionists, cooks etc. The workers in hospitality sector are also required to understand their duties and responsibilities towards tourists and should come forward willingly to offer their services, as gesture and etiquettes do mater a lot in any service industry.

6. Strategy for Effective Marketing

As there is fierce competition for tourists from India ’s source markets, India needs to change its traditional marketing approach to more competitive and modern one. The positioning statement captures the essence of tourism product to convey an image of the product to a potential customer. The Tenth Plan has launched an extensive market research programme for better market representation for the target market segments. The Tourism Ministry has also been using internet to popularise various tourist destinations.    

The Way Ahead

The tourism scenario in India is fast growing and generating significant job opportunities. Recognising this potential and the role it can play in furthering India ’s socio-economic objectives, the travel and tourism sector has been given a prime status by the Government of India. Nevertheless, tourism cannot be looked at in isolation as a growth sector or revenue earner. It can also be a catalyst for investment, enabling infrastructure development, such as transport, communications and power supply, which is also vital for industry. Subsequently, provision of reliable amenities for investors will pull in tourists too. The sector has inherent strength to reduce regional disparities in the country. Besides these, India 's outbound tourism is growing more than the inbound tourism. As a result, we are facing deficit as more Indians are spending their money overseas than foreigners spending their money in India . This imbalance also needs to be rectified by promoting rather thoughtfully, the foreign tourism sector. Considering the present structural problems, it is imperative to work on these issues so that the tourism potentials are exploited to the fullest and hurdles are minimised.   

__________

[* This note is prepared by Gauri Ranade.]

Highlights of  Current Economic Scene

AGRICULTURE     

In the post quota period, the share of country’s domestic apparel exports to the European Union (EU) market has increased by 1 per cent to stand at 5.76 per cent as against China ’s growth of 10 per cent with its market share standing at 33.2 per cent. While domestic apparel exports to the region has been Rs 15,582 crore in 2005, China's exports has aggregated to almost Rs 90,000 crore. In the woven apparel segment, Indian exports have risen by 9 per cent and that of knitted garments has gone up by 12 per cent during the same period, where as Chinese exports in the two segments have augmented by 44 per cent and 64 per cent respectively. Barring the two countries, other Asian players together have lost 7.7 per cent of their share in the EU market. Market share of leading players like Turkey has dropped by 0.10 per cent and that of Morocco by 0.6 per cent.

According to Spices Board, export of seed spices has witnessed a 7 per cent drop in terms of quantity and 3 per cent in terms of value during the first three quarters of fiscal year 2005-06. Spices worth Rs 1,676 crore (2,44,666 tonne in terms of volume) has been exported during the same period, compared to 2,62,067 tonne worth Rs 1,728 crore exported during the same period in 2004-05. Exports have lagged behind by just 2 per cent of the target fixed (2.5 lakh tonne) for the whole fiscal year in terms of quantity and have fallen short by 20 per cent of the targeted value. All the seed spices including coriander, cumin, celery, fennel, fenugreek have registered a substantial decline during April-December 2005-06 with fennel leading with 42 per cent fall in quantity and cumin topping with 36 per cent fall in the value. This reduction has been attributed to better crop in other countries and due to higher domestic prices on account of lower crop as a result of the floods during the monsoon.

In order to boost the exports of flowers by reducing delays and wastages involved therein, Karnataka, a leading state in flower exports has proposed to set up a flower processing centre at the upcoming international airport near Bangalore . The processing centre would have the perishable cargo handing facilities for exports, and for the benefit of the growers the government has plans to set up a flower auction centre at Amsterdam , a leading importer of the flowers from the state. The new centre would also have the facility to check if the flowers meet the US and EUs stringent international standards.

Rice procurement by the Food Corp of India (FCI) is expected to touch a record high of 25 million tonne in the marketing year (October-September) 2005-06. As per Food Corp, this hike in procurement is due to satisfactory harvest in Tamil Nadu, Andhra Pradesh, Chhattisgarh, and Orissa. Food Corp. has already started buying rice from Orissa and Chhattisgarh. The agency had procured a record 24.6 million tonne of rice in the marketing year 2004-05.

The Rubber Board has attained its target of bringing 8,000 hectares under rubber cultivation in 2005. According to provisional estimate, the area with new rubber trees and replanted trees touched 13,885 hectares in 2005, up by 4,600 hectares compared with 2004. According to rubber production commissioner, the main reason for the rise in the area under rubber cultivation is higher prices. Expansion and replanting took place mainly in Kerala and Tamil Nadu, which accounted for 11,700 hectares, with states in the north-east region taking credit for the rest. India , the fourth largest producer of rubber in the world, currently has 581,000 hectares of land under rubber cultivation.

INFRASTRUCTURE

Energy

The Planning Commission has approved the allocation of Rs 50 crore as part of National Bio Diesel Mission to the rural development ministry for setting up a departmental sanction committee (DSC), which will prepare a feasibility report of the bio-diesel project and sent it to the National Oilseeds and Vegetable Oils Development Board (NOVAD) for approval. Out of the Rs 50 crore NOVAD will set up a jatropha curcas plantation in around 15-20 thousand hectares.

Coal

The Group of Ministers has recommended 100 per cent FDI under automatic route in both coal and non-coal mining sector by removing some o the present restrictions in line with the government’s recent policy of undertaking initiatives to encourage development in the mining sector.

Shipping

The government is planning to set up a centrally sponsored scheme (CSS) for promotion of coastal shipping. The rationale behind the proposal is that the major ports are facing congestion problems handling container traffic that is more than their earmarked capacities. Thus, minor ports are being seen as an ideal alternative. Minor ports in seven states, namely, Gopalpur (Orissa), Azhikkal (Kerala), Malpe (Karnataka), Dharamtar (Maharashtra), Magdalla ( Gujarat ), Cuddalore (Tamil Nadu) and Gangavaram (Andhra Pradesh) have been selected for the purpose. The cost has been estimated at Rs 15000 crore with the centre providing 20 per cent assistance.

INFLATION

The annual point-to-point inflation rate based on wholesale price (WPI) index has gone down to 4.24 per cent for the week ended January 7, 2006 from 4.40 per cent during the previous week. The inflation rate was higher at 5.77 per cent in the corresponding week last year.

The WPI in the week under review has risen marginally by 0.1 per cent to 196.9 from 196.8 in the previous week (Base: 1993-94=100). The index of primary articles’ group (weight 22.02 per cent) has risen by 0.2 per cent to 194.7 from the previous week’s level of 194.4, due to an increase in the price index of food articles and non-food articles. The index of food articles increased marginally by 0.1 per cent to 196.6 from 196.5 in the last week, mainly due to higher prices of barley, urad, fish-marine, wheat and fruits and vegetables. Similarly, the index of non-food articles has also risen considerably by 0.5 per cent to 177.2 from 176.4 for the previous week, mainly due to higher prices of sunflower, raw jute, fodder and linseed. The index of ‘fuel, power, light and lubricants’ group (weight 14.23 per cent) has gone up a tad to 311.2 from 311.1 for the previous weeks level. The index of ‘manufactured products’ group constituting the maximum of 63.7 per cent of total weight, has also risen marginally by 0.1 per cent to 172.2 from the previous week’s level of 172.1, mainly due to incerased prices of food products,  ‘rubber and plastic products’ and ‘non-metallic mineral products’.

The latest final index of WPI for the week ended November 12, 2005 has been revised downwards; as a result both, the absolute index and the implied inflation rate declined to 198.4 and 4.09 per cent respectively, as compared to their provisional week’s level of 198.6 and 4.20 per cent, respectively.

Overall, the rate of inflation has remained reasonably contained in the range of 4 to 4.5 per cent in the month of November and December. Moreover, the Finance Minister has also assured over price stability by emphasising on fiscal measures, if necessary. He added that the current rate of inflation, which is below 5 per cent is not a cause of concern.

BANKING

Infrastructure Development Finance Company Ltd. (IDFC) has posted a 11.33 per cent rise in net profit at Rs.89.4 crore for the quarter ended December 31, 2005, compared with Rs.80.3 crore in the corresponding quarter of the preceding fiscal.

The IPO scam has hurt ICICI Bank and the State Bank of India ’s (SBI) US plans. The US Federal Reserve has delayed clearing ICICI and SBI’s application for entering the US for expanding operations, citing poor anti-money laundering practices in India . The IPO scam has only strengthened the US view. ICIC Bank is present in Canada , UK , Russia , Singapore , Sri Lanka and West Asia . While SBI operates across continents. In the US , it has branches in New York , Chicago , Los Angeles and Washington .

ING Vysya bank’s net profit fell by 23.7 per cent for the quarter ended December 2005 to Rs.4.86 crore as against Rs.6.37 crore for the corresponding period last year.

SBI Capital markets has entered into a strategic alliance with CLSA, a leading international broking and merchant-banking firm. The alliance would offer investment-banking services, jointly bid for merger and acquisition assignments in India and facilitate overseas acquisitions by Indian corporates.

The 30 per cent growth in credit off take that the country is witnessing may well lead to concerns about loans turning into bad. Credit demand, which has been growing at 28-30 per cent annually for more than the past 12 months, is seen in all sectors – retail, rural, industrial and infrastructure. High credit offtake growth brings with challenges of NPAs and perhaps pressure on resources.

PUBLIC FINANCE

The government has decided to sell 5 per cent stake in Power Finance Corporation in tandem with the initial public offering (IPO) that would raise up to Rs 1,500 crore.

The government is exploring the proposal to sell 10 per cent stake in UTI Bank to a public financial institution. The stake, proposed to be sold, is part of the 27.7 per cent holding of the Specified Undertaking of UTI (SUUTI) in the bank.

The new policy on collecting access deficit charge (ADC) on a revenue-share basis is likely to be announced at the end of the month. The Project Definition Team, set up by the Department of Telecom  with the defence ministry, will submit its report on release of spectrum  by the armed forces on January 20, 2006. 

The IPO allotment scam is now verifying the role of income tax department. Investigations underway are pointing at the involvement of some income tax officers as well. A few officers issued several PAN cards that were used with benami IPO applications  in the Yes Bank offering. A probe is underway to ascertain whether bogus PAN numbers were quoted.  The tax department for instance, recently found bogus or incorrect PAN numbers being quoted by individuals making high-value purchases. These purchases are being tracked through the annual information returns (AIR) filed by third parties. Under the income tax law, it is illegal for an individual to hold more than one PAN card.

Multinational companies which have expats on their rolls have come under the income-tax department’s scanner for possible defaults on tax deduction at source (TDS). The tax authorities are also looking at TDS defaults by charitable institutions. State-owned banks and insurance companies providing  rent-free accommodation to their employees are also been tracked for TDS compliance.

FINANCIAL  MARKET

Capital Markets

Primary Market

Gujarat State Petronet Ltd is tapping the market            between January 24 and 28 through issue of 13.8 crore shares of face value of Rs 10 each in the band of Rs 23-27 which will be issued through 100 per cent book-building process.

Entertainment Netwok India  Ltd is issuing 1.32 crore shares through 100 per cent book-building process of Rs 10 each in a price band of Rs 144-162 per share. The proceeds of the issue to the extent of Rs 145 crore have been earmarked towards the payment of one time entry fee and migration fee under the phase II policy.

Inox Leisure is tapping the market by issuing 1.65 crore shares through 100 per cent book-building process in a price range of Rs 100 –120 per share.

Secondary Market

Despite a slow down in FII inflows, the BSE sensex rose by 147 points and Nifty by 50 points. Towards the end of the week, a lot of action was seen as the Relaince industries stock rose sharply before the being stripped of non-core business on Wednesday. The week was the BSE sensex close above the psychologically important mark of 9,500 points and NSE above the 2,900 mark. Among the sectoral indices of BSE, capital goods index has registeres the higesht gains of 5.46 per cent followed by oil and gas index at 2.03 per cent. while the BSE sensex registered a gain 1.57 per cent, BSE small cap and mid-cap registered gains of 0.89 per cent and 1.30 per cent, respectively. The market breadth was positive as 19 out of 30 stocks of BSE sensex ending in positive territory. The turnover on BSE and NSE was higher during the week.

Since the beginning of the new calendar year till January 21, the FIIs have been net buyers of equities to the extent of Rs 2560 crore with purchases of Rs 23594 crore and sales of Rs 21034 crore.

Mutual funds during the week under review have been net sellers of equities to the extent of Rs 729 crore with sales of Rs 2800 crore and purchases of Rs 2071 crore.

The mutual fund industry seems to be in a paradoxical situation wherein on one hand the market is flooded with new fund offers that are enticing investors with offers of good returns and on the other, fresh subscriptions in case of a couple of existing schemes as the assets under management have increased manifold and fund managers are finding it difficult to manage.  

With regard to the recent developments relating to transactions in shares of IPOs during the pre-listing period, the Sebi had advised depositories that in case of IPOs they should activate the ISINs only on the date of commencement of trading on the stock exchanges.

Derivatives                                  

Sebi has reviewed the eligibility criteria of stocks for derivatives trading especially on account of corporate restructuring and has said that all the following conditions should be met in the case of shares of a company undergoing restructuring through any means for eligibility to re-introduce derivative contracts on that company from the first day of listing of the post restructured company/(s) ’s (as the case may be) stock (herein referred to as post restructured company) in the underlying market,

a)   the Futures and options contracts on the stock of the original (pre restructure) company were traded on any exchange prior to its restructuring;

b)   the pre restructured company had a market capitalisation of      at least Rs.1000 crores prior to its restructuring;

c)   the post restructured company would be treated like a new stock and if it is, in the opinion of the exchange, likely to be at least one-third the size of the pre restructuring company in terms of revenues, or assets, or (where appropriate) analyst valuations; and

d)  in the opinion of the exchange, the scheme of restructuring does not suggest that the post restructured company would have any characteristic (for example extremely low free float) that would render the company ineligible for derivatives trading,

 With effect from January 27, the Sebi has changed the market wide position limits (MWPL) on derivatives as follows: ( I) For stocks having applicable MWPL of Rs. 500 crores or more, the combined  futures and options  position limit  shall be 20% of applicable MWPL or Rs. 300 crores, whichever is lower and within which stock futures position cannot exceed 10% of applicable MWPL or Rs. 150 crores, whichever is lower. (II) For stocks having applicable market-wise position limit (MWPL) less than Rs. 500 crores, the combined futures and options position limit would be 20% of applicable MWPL and futures position cannot exceed 20% of applicable MWPL or Rs. 50 crore which ever is lower. (III)  The MWPL and client level position limits however would remain the same as prescribed.

Government Securities Market

Primary Market

The RBI conducted the on-tap sale of 7.61 per cent state development loan for two states, Andhra Pradesh and Haryana, for aggregate amounts of Rd 316.53 crore and Rs 165.93 crore, respectively. The cut-off yields have been set at 7.32 per cent for Andhra Pradesh and 7.33 per cent for Haryana.

RBI conducted ‘on-tap’ sale 7.61 per cent state loan for eight states for an aggregate amount of Rs 700 crore.

Secondary Market

Liquidity conditions in the money market improved as the call rates eased by around 100 basis points to 6.40-6.60 per cent as against 7.50 per cent. Also, the bids tendered for daily average repo bids fell marginally due to the increase in liquidity. Given the uncertainties associated with the quarterly review of monetary policy, the market sentiments remained subdued. Despite the improvement in liquidity, the weighted average YTM 8.07 per cent 2017 rose from 7.18 per cent on January 13 to 7.21 per cent on January 20. Also, the speculation that the surge in oil prices to their multi-month will cause inflation to accelerate kept the market sentiments cautious. 

Bond Market

There were two issues during the week, Bank of Maharashtra and Punjab Finance Corporation, to mobilize Rs 320 crore by offering coupon rates of 7.50 per cent and 7.85 per cent, respectively.

Foreign Exchange Market

The rupee-dollar exchange rate remained under pressure as the oil prices surged to nearly 5-months high and falling bourses, weighted on the exchange rate as the rupee depreciated from Rs 44.26  on January 13 to Rs 44.36 on January 20.

The six-month forward premia rose from 1.86 per cent on January 13 to 2.15 per cent on January 20.

Commodities Futures derivatives

Commodities market regulator, the Forward Market Commission (FMC), stated that its guidelines for Regional Commodity Exchanges (RECs) taking up membership of national commodity exchange is not mandatory across the board.

INSURANCE

Iffco-Tokio General Insurance has launched a weather insurance policy for wheat farmers. The policy provides cover against potential loss in the yield of wheat arising out of frost or heat stress owing to adverse temperature during the rabi season (November-March). It also aims at providing an insurance cover in the case of frost during January, based on the daily minimum temperature.

CREDIT RATING

Care has assigned a ‘PR1’ rating  the proposed commercial paper programme of upto Rs.25 crore (enhanced from Rs.10 crore) of Delhi Assam Roadways Corporation Ltd (DARCL). The rating factors in the consistent track record of the company in terms of growth, its market share in the bulk transport industry, network of branches and established clientele.

Care has assigned a ‘AA-’ rating to the proposed long-term debt (including secured NCD / Term Debt) of Rs.44 crore of Aegis Logistics Ltd (ALL). It has also upgraded the ‘A+’ rating assigned to the outstanding NCD issue of Rs.1 crore of ALL to ‘AA-’. The above rating factors in ALL’s dominant position in Bulk Liquid Logistics business and its improving operational and financial performance

Care has reaffirmed the ‘AAA’ rating for Rs.125 crore Tier III Bonds issue of IDBI Capital Market Services Ltd. (ICMS). The rating factors in ICMS’ position as a leading primary dealer (PD) in India , high quality and liquidity of its asset portfolio, comfortable lines of credit and short residual maturity of the rated instrument.

Care has reaffirmed the ‘AAA (SO)’ rating assigned to the long-term bond programme of Indian Iron & Steel Company Ltd. (IISCO) for an outstanding amount aggregating Rs.64cr. The rating is based on credit enhancement for the bond issue in the form of ‘guarantee’ from government of India .

Care has retained the ratings assigned to the outstanding NCD programmes aggregating to Rs.32 crore at ‘AA’ of Polyplex Corporation Limited (PCL). The agency has also assigned ‘AA’ to the NCD aggregating Rs.20 crore of PCL. Further, a ‘PR1+ [PR One Plus]’ rating has been assigned to the commercial paper/ short-term debt programme aggregating Rs.15 crore of PCL. The rating takes into account the company’s sound professional and experienced management, optimum capacity utilisation and comfortable overall gearing as well as the robust performance of PCL’s subsidiary, Polyplex Thailand Public Company Limited (PTL).

Care has reaffirmed the ‘AA’ rating to the existing Tier II subordinate bonds (Series III, Series IV and Series V) aggregating to Rs.367.5 crore of Bank of Maharashtra (BoM). It has also assigned ‘AA’ rating to the proposed issue of Tier II subordinate bonds of Rs. 450 crore of BoM. The rating factors in majority ownership by government of India , long standing track record of operation, moderate capital adequacy and improving asset quality. The rating is however, constrained by its low credit deposit ratio, vulnerability of the investment portfolio to adverse interest rate movements and significant ALM mismatches.

Care has reaffirmed the ‘A-’ rating assigned to the subordinate Tier II bond issue of Bank of Rajasthan Ltd. (BoR) of Rs. 72 crore. Care has also assigned the ‘A-’ rating to the proposed subordinate bond issue of Rs. 70 crore of BoR. The rating factors in the long track record of operations of the bank, low cost deposit base, improvement in asset quality of the bank and satisfactory capitalisation levels.

Icra has reaffirmed the ‘A1+’ rating for the Rs. 10 billion short-term debt programme of Securities Trading Corporation of India Limited (STCI). The rating factors in the strong market position of STCI in the primary dealer (PD) business, besides the company’s sound internal prudential norms, adequate risk management systems, and experienced senior management.

Icra has upgraded the Rs.500 million debenture programme of Telco Construction Equipment Company Limited [Telcon] to ‘LAA’ from ‘LA+’; it has also reaffirmed the ‘A1+’ rating to the commercial paper/short term debt programme of Telcon for an amount of Rs. 800 million. The revised ratings reflect the strong and steady domestic demand for construction equipment, the continuing leadership position in the excavator segment, increased diversity in product mix, higher profitability, steady improvement in capitalisation and liquidity and its strong parentage.

CORPORATE SECTOR

Hindalco Industries, the flagship company of the Aditya Birla Group, has decided to buy aluminium rolling and conductor rod assets of Hyderabad based Pennar Aluminium Company (Palco) from the Asset Reconstruction Company (Arcil). Palco has its facility in Nagpur with an installed capacity of 30,000 tonne per annum of aluminium rolled products and 14,000 tonne a year of conductor rods.

Hindustan Zinc Limited, India ’s largest zinc and lead producer, has raised zinc-selling prices by 3.9 per cent or Rs 4,200 per metric tonne across al varieties.

Era Constructions India has got Rs 47.5 crore contract from Bharat Heavy Electricals Limited for all civil structural and architectural work for expansion of its Bhilai power project in Chattisgarh.

HCL Technologies has signed a co-sourcing deal worth Rs 1,500 crore with DSG International Plc, Europe ’s leading electrical retailer. Under the agreement, HCL will provide system development, application delivery, infrastructure support and maintenance services to the European retailer. 

Wipro has decided to invest up to $ 250 million for setting up a facility in Romania . The company also has plans to expand to Asia Pacific region.

CS Software Enterprise has received Rs 3.7 crore e-governance order from Andhra Pradesh Technology Services.

For October-December 2005, Gujarat Heavy Chemicals net sales has risen by 30 per cent to Rs 169 crore over the same period previous year and net profit has registered a whooping 259 per cent increase to Rs 26.6 crore.

The Mukesh Ambani controlled Indian Petrochemicals Corporation Limited (IPCL) has posted 25 per cent rise in the net sales to Rs 2,413 crore in the third quarter of 2005 and 20.6 per cent growth in the net profit to Rs 228 crore over the same period previous year.

Larsen and Toubro’s (L&T) net sales have increased by 13.5 per cent to Rs 3,666 crore for the third quarter of 2005 and net profit has surged by 96 per cent to   Rs 259 crore over the same period previous year. L&T has decided to source raw material like plastic, steel and copper worth Rs 800-1000 crore from China .

Maruti Udyou Limited, India ’s leading car company, has reported 41 per cent rise in the net profit to Rs 339 crore for the third quarter of 2005.

Bharat Forge, the world’s second largest forging company, has posted a 6.1 pre cent rise in its net sales to Rs 399 crore for the quarter ended December 2005 and a 28.6 per cent growth in its net profit at Rs 53.3 crore over the corresponding period previous year.

Tata Power Company has posted a growth of 66 per cent in net profit to Rs 227.6 crore for the quarter ended December 2005.

Reliance Energy Limited has posted 22.7 per cent rise in its net profit at Rs 164.6 crore for October-December 2005 and total income has increased marginally just by 0.25 per cent to Rs 1,137 crore over the same quarter previous year.

Satyam Computer Service’s net profit has jumped up by 182 per cent to Rs 493 crore for the quarter ended December 2005. During the quarter under review, the company has added 35 new clients and 950 employees.

For the quarter ended December 2005, Tata Infotech’s net profit has augmented by 31 per cent to Rs 26.6 crore over the same period previous year.

HCL Technologies has reported a 263 per cent rise in the net profit to Rs 277.8 crore for the quarter ended December 2005.

Aditya Birla Group Company, Ultra Tech Cement Limited, has declared its result for the third quarter of 2005. Though its net sales have gone up by 5 per cent to Rs 783 crore over the same period previous year, it has posted a net profit of   Rs 24 crore as against a net loss of Rs 11 crore over the previous year.

Shree Cement has reported a 70 per cent increase in its net profit for the quarter December 2005 to Rs 27.9 core over the corresponding period previous year.

Jaiprakash Associates Limited has posted 26.7 per cent rise in its net profit to     Rs 57 crore for October-December 2005. The company’s total income has increased by 17 per cent to Rs 825 crore over the same period previous year.

India ’s biggest tobacco maker, ITC Limited, has posted a 20 per cent rise in its net profit to Rs 536 crore on strong sales of cigarettes for the third quarter of 2005.

For the quarter ended December 2005, Nirma Limited has reported 42.6 per cent rise in its net profit to Rs 100 crore over the same period previous year. 

Indian Hotels has registered 27 per cent rise in its net sales to Rs 317 crore for the quarter ended December 2005 as well as its net profit has boosted by 79 per cent to Rs 61.5 crore over the same period previous year.

JSW Steel has registered a 31 per cent growth in net profit during the quarter ended December 2005 at Rs 139 crore against the same quarter previous year.

Ranbaxy Laboratories has witnessed 62 per cent decline in its net profit to Rs 259 crore for the year ended December 2005. In the last quarter the company’s global sales have declined by 2 per cent to Rs 1405 crore while net profit has dipped by 57 per cent to Rs 68 crore.

Nicholas Piramal India Limited has reported 9.2 per cent rise in the net sales for October-December 2005 at Rs 350 crore, however, its net profit has diminished by 69.9 per cent to Rs 23.9 crore over the same period previous year. During the quarter ended December 2005, company’s exports have surged by 66 per cent to Rs 65 crore.

Biotechnology major Biocon has reported 13 per cent decline for the third quarter ended December 2005 in its net profit to Rs 44 crore and the revenue grew up by 10 per cent to Rs 201 crore over the same period previous year.

Agrochemicals firm, Rallies India, reported a 35.7 per cent decline in the net profit at Rs 8.6 crore during the third quarter ended December 2005. Total income has gone down by 8.1 per cent to Rs 166 crore over the same period previous year.

Hindustan Machine Tools (HMT) has repoted 13.7 per cent fall in the total income to Rs 65.6 crore for the third quarter of 2005. HMT has suffered a net loss of Rs 1.5 crore for the quarter under review compared to a net profit of Rs 3 crore in the corresponding quarter previous year.

Uttam Galva’s net sales have declined by 11 per cent at Rs 464 crore for the quarter ended December 2005 and net profit has deteriorated by 33 per cent to   Rs 16.7 crore over the same period previous year.

LABOUR

It has been evident from last several years that corporate India has focused more on minimising labour costs apart from the total costs. Computerisation and introduction of new technology has together built up pressures for downsizing the work force. The labour output ratio and the cost of labour to value of production of 474 big companies (sales above Rs 100 cores) as a whole, declined in 2004-05 over the previous year. This indicates better labour utilisation by these corporates. Output of these 474 companies taken together increased by 14.29 per cent to Rs 6,76,768 crore in 2003-04 from Rs 5,92,168 crore in 2002-03 and further increased by 25 per cent to Rs 8,47,209 crore in 2004-05. The labour cost (salaries and wages, provident fund, gratuity etc) of these companies increased by 13.4 per cent to Rs 32, 375 crore in 2003-04 from Rs 28, 559 crore in 2002-03 and marginally increased by 1.8 per cent to Rs 32, 971 crore in 2004-05. Therefore, the labour-output ratio steadily declined from 4.82 per cent in 2002-03 to 4.78 per cent

EXTERNAL SECTOR

The United Kingdom has mooted for a free trade agreement between India and European Union. UK has also pitched for opening up of financial services sector in India , particularly banking and insurance to allow British banks with a long presence in India to expand and become more competitive.

The government has issued notification to allow 100 per cent FDI in the up linking of television channels in the non-news categories and 26 per cent in news channels.

India ’s exports are set to cross $93 billion in 2005-06. Despite a much higher base, exports have grown at a robust rate of 18 per cent for the first nine months of the current fiscal year. An interesting aspect of this year’s exports is significantly higher shipment to China . Exports to China are now averaging $1 billion per month from $1 billion per annum, a few years back. Exports of engineering goods and iron ore have also been substantial.

The Cabinet is considering a proposal to liberalise foreign direct investment and open up Greenfield airports to 100 per cent FDI. The government is also considering allowing 100 per cent FDI via the automatic route in four other sectors – petroleum marketing infrastructure, power trading, processing and warehousing of plantation products like coffee and rubber plantation and coal and non-coal mining.

TELECOM

The ministry of communications and Information Technology will provide Rs.451 crore from the universal service obligation fund to set up public telephones in 66,822 villages under the Bharat Nirman programme by November 2007. At present, these villages do not have telephone connectivity. Out of the 66,882 villages connectivity in 14,183 remote and far-flung villages will be provided through digital satellite phone terminals.

INFORMATION TECHNOLOGY

Wipro Ltd.’s net profit has increased by 27 per cent to Rs.543 crore for the quarter ended December 2005.

Satyam Computer Services posted 182.10 per cent jump in net profit for the third quarter ended December 31, 2005, as compared with Rs.174.78 crore for the corresponding quarter in the proceeding financial year.

Geometric Software Solutions has posted a lower net profit of Rs.2.34 crore for the third quarter ended December 31, 2005, as compared with Rs.6.56 crore for the corresponding quarter in the previous financial year.

In order to strengthen the security apparatus in the Business Process Outsourcing (BPO) industry, NASSCOM has launched a national database of IT professionals – the National Skills Repository (NSR). The repository is a centralised database, containing the educational and professional background of the employees in the BPO industry. Five companies including TCS, CMC, GEnpact, Satyam and Mphasis have signed up for the database. Companies, which sign up for the NSR, will have details of all their existing employees.

*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.

LIST OF WEEKLY THEMES

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