Current Economic Statistics and Review For the
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Theme
of the week: Trends in India’s Tax Revenue: 1990-91 to 2005-06 (BE)
*
A
dominant aspect of reforms under the structural adjustment
and stabilisation programmes initiated by the Indian government in
1991 has been the fiscal reform, which has taken varied forms. First,
there was the explicit target set
for the reduction in gross fiscal deficit and revenue deficit. Second,
such a fiscal consolidation was to be achieved through a series of
measures to mobilise tax and non-tax resources, to tighten expenditure
controls and to reduce and redirect subsidies. As explained in a
subsequent section, while tax reforms have been undertaken quite
persistently, the tightening of expenditure controls has left much to be
desired. As
a result, the goals of deficit reductions could not be attained for almost
a decade. Therefore, statutory limits have been prescribed for the first
time on the gradual reductions of fiscal and revenue deficits under the
Fiscal Responsibility and Budget Management Bill (FRBM) 2003. As shown in
Table 1, the statutory limit has brought about considerable improvement in
the deficit situation for the central as well as state governments.
Thereby hangs an interesting tale of government effort to improve revenue
mobilisation.
It
is found that with the pressing demand for a series of government
programmes under plan and non-plan heads and with the need for large
expenditures on specially-committed liabilities, expenditure compression
has not been possible. Amongst the revenue sources, non-tax revenues
hardly have any built-in growth possibilities at any rate in the short
run. In these circumstances, tax revenues have become the mainstay for the
fiscal adjustment programme. The
note attempts to review the changes effected from time to time in the
rates of taxation. Before doing so, an attempt is made to study the broad
trends in tax-GDP ratio and the composition of different taxes in the
total tax structure of the central government
as a backdrop to the details of tax revenues presented below:
Within
the total taxes, a redeeming feature has been the gentle rise in the
direct taxes to GDP ratio, while indirect tax to GDP ratio has been
persistently declining. These trends have been in conformity with the
policy goals under fiscal reforms. A
healthy tax structure is said to be one in which the share of direct taxes
is higher and growing. Direct taxes achieve better distributional goals
and do not impinge on cost of production of industries. On the other hand,
high domestic indirect taxes were said to be tending
to escalate cost of production for the industry and making it
non-competitive. Also, the notion of protection for the domestic industry
through high tariffs had lost its relevance in the context of external
sector liberalisation. As indicated below, substantial
reductions have been effected in peak tariff rates, with the medium term
goal of achieving parallel tax rates with the Asian rates.
Composition
of Gross tax revenue
Likewise,
within the indirect taxes structure, while both customs and union excise
duties have been declining, the decline has been the steepest in custom
duties. Union excise duties, which always enjoyed the status of producing
the highest share in the Centre’s gross tax revenue, have also tended to
loose in share, but remaining still the highest. Over the years corporate
income tax has displaced customs duties to be the 2nd largest
contributor to gross taxes; even
the share of income tax has exceeded the share of customs duties. With the
services sector growing fast and
crossing 52 per cent of total GDP, the share of service tax is expected to
grow in the coming years. It is a new tax which began in the mid-1990’s;
it embraces about 81 types of
service activities. The share
of service tax in gross tax revenue has increased gradually from
0.4 per cent for 1994-95 to 4.6 per cent in
2004-05 (RE) and it is
placed at 4.7 per cent in
2005-06 (BE) (Table 3). Recent
Evolution of Tax Rates at the Central Level (1991-92 to 2005-06)
Chart
A: Tax payable and income of returns over Rs 10,00,000
Source:
Indian Public Finance Statistics (2003-04). Chart
B : Tax payable and income of returns (Rs 5,00,001-10,00,000)
Source:
Indian Public Finance Statistics (2003-04). Corporate
Tax
The
corporate tax rate of about 45.0 per cent as prevailing in 1993-94 for
domestic companies was reduced subsequently to 30.0 per cent with addition
of 10.0 per cent surcharge and 2.0 per cent education cess in 2005-06
(BE); the latter burden works out to 35.00 per cent as against 45 per cent
in 1993-04. Similarly, for foreign companies the corporate tax rate was
reduced gradually from the range of about 50.0-65.0 per cent in 1993-94 to
40.0 per cent with addition of 2.5 per cent surcharge and 2.0 per cent
education cess in 2005-06 BE (Table 5).
As
in the case of income tax, despite reductions in corporate tax rate, its
share in total gross tax revenue has moved up (Table 3). Corporate tax
revenues also have grown at an annual rate of about 20.5 per cent.
This could have been a result of good corporate performance and
increased tax compliance. According to an RBI study (RBI Bulletin
November 2005), the annual growth in sales and gross profits of the
private corporate sector on an average from 1990-91 to 2002-03 works out
to 11.7 per cent and 10.2 per
cent, respectively. A factor
which contributed to higher pre-tax profits has been the general
decline in interest to gross profits ratio. With the reimposition of
corporate taxation on zero-profit-making companies, the average rate of
taxation paid by companies has gone up. Tax provision as percentage of
profits before tax (PBT) has gone up from 19.7 per cent in 1995-96 to 36.7
pr cent in 2001-02 and 31.3 per cent in 2002-03. In this respect, the
situation differs from the situation that has obtained for individual
income tax assesses. Customs
duty Share
of customs duty in gross tax revenue was 31.9 per cent
in 1992-93 but declined
to 18.4 per cent in 2004-05
(RE) (Table 3). Customs duty has been gradually lowered over the past 12
years. This has affected the share of custom duty in gross tax revenue.
Also, simplification of the rate structure has been done to some extent.
Instance of custom duty changes has been mentioned below
for some goods to provide an idea about the policy stance. 1.
Import
duty on cotton fabrics reduced from
110 per cent to 50 per cent ad
valorem in 1993-94. 2.
Customs
duty on specified imports by couriers reduced from 150 per cent
to 100 per cent. Maximum rate of duty for such imports reduced from
345 per cent to 200 per cent
in 1994-95. 3.
Duty
on items attracting duty higher than 50 per cent
reduced to 50 per cent except
on items such as passenger baggage and imports by couriers in 1995-96. 4.
In
1997-98 peak rate of customs duty reduced from 50 per cent
to 40 per cent except on items
such as passenger baggage and imports by couriers. 5.
In
2001-02, customs duty on 159 specified textiles machines reduced from 15
per cent to 5 per cent . 6.
In
2003-04, peak rate of customs duty reduced from 30 per cent
to 25 per cent. 7.
In
2004-05, customs duty reduced from 20 per cent
to 15 per cent on
metals, such as ferrro alloys and stainless steel. Duty on specified
textile and garment making machinery reduced from 20 per cent to 5 per
cent. These items were to subjected to CVD (Additional Duty on Customs). 8.
In
2005-06, peak rate of customs duty on non-agricultural products has been
reduced from 20 per cent to 15
per cent with a few
exceptions. Union
excise duty
6. Excise duty on polyester filament yarn including polyester textured yarns reduced from 24 per cent to 16 per cent in 2005-06. Service
tax
Taxes
withdrawn and newly introduced (restricted
to information available) 1.
Gift-tax abolished
for gifts made after 1.10.1998.
The
government in the budget 2005-06 introduced some new
taxes which are: Fringe
Benefit Tax (FBT) FBT
is a tax on the employer on
the value of perquisites and benefits provided or deemed to have been
provided to the employees. Securities
Transaction Tax (STT) STT
has to be charged at specified rates on particular transactions made with
rate for instance 0.075 per
cent - 0.2 per cent on the value of transactions in 2005-06. Banking
Cash Transaction Tax (BCTT) BCTT
has been levied at 0.1 per cent on
taxable banking transactions in 2005-06. April-December
2005 Customs
duty collections in the first nine months of the financial year 2005-06
have about 90 per cent of the
budget estimates for 2005-06. Corporation tax, income tax and excise duty
collections during April-December 2005 have been around 55 per cent of
their 2005-06 budget estimates. Net tax revenue collected is 61.7 per cent
of 2005-06 BE during the first nine months of financial year 2005-06
(Table 7).
Conclusion
In recent years, however, there have been distinct signs of
improvement in tax-GDP ratios, Structure of taxation has also undergone a
healthy change. The share of direct taxes in total tax revenue has
improved, while the share of indirect taxes has declined. The rates of
taxation have been reduced for both, but the reductions have more drastic
in indirect taxes than in direct taxes.
Within direct taxes,
there is a difference in behaviour as between income tax and corporate tax
revenues. Both have risen at high annual rates of 17 per cent
and 21 per cent respectively, during the past decade or so, but
while the average income tax payable has drastically come down, tax
provision in respect of companies as percentage of pre-tax profits has
risen significantly in recent years due to re-introduction of taxation on
zero tax-paying companies. In the case of income-tax assessments, revenue
collections have increased because there has been a distinct shift in
incomes in favour of higher income brackets.
On the evolving nature of the structure of taxation, apart from
improvement in the share of direct taxes, there is the possibility
of the services tax playing a growing role.
Data SourcesReserve
Bank of Reserve
Bank of EPW
Research Foundation (2005): ‘Finances of State Governments in Government
of Government
of References Allen,
Charles M (1971): ‘The Theory of Taxation,’ Penguin Books Ltd, Cukierman,
Alex and Edwards, Sebastian and Guido, Tabellni (1992): ‘Seigniorage and
Political Instablity’, The American Economic Review, vol 82(3). Government
of Government
of Government
of Keen,
Michael and Lighart, Jenny, E (2001): ‘Coordinating Tariff Reductions
and Domestic Tariff Reform,’ Journal of International Economics,
vol 56 (2). Khattry,
Barsha and Mohan Rao (2002): ‘Fiscal Faux Pas? An Analysis of the
Revenue Implications of
Trade Liberalization, World Development, vol
30 (8). Rajaraman,
Indira (2004): ‘Fiscal Developments and Outlook in RBI
Bulletin (2005): ‘Performance of Private Corporate Sector in the Post
Liberalisation Period,’ Reserve Bank of Stemrod,
Joel (1999): ‘Tax Policy in the Real World,’ Press Syndicate of
the Appendix
I Report
of the Task Force on Direct Taxes (2002) (Chairman:
Dr Vijay Kelkar) Some
recommendations of the Task Force are: 1.
To render quality tax
payer services by tax administration to encourage voluntary compliance of
tax laws. 2.
To detect and
penalize non-compliance. Income-tax
reforms 1.
Low rates, few
nominal rates, a broad base, few exemptions, few incentives, few
surcharges, few temporary measures. 2.
The basic exemption
limit must be at moderate level Corporate
reforms 1.
The general rate of
depreciation for plant and machinery’s should be reduced to 15 per cent
from the existing level of 25 per cent. 2.
The tax benefit u/s
33 AC of the Income Tax Act should be abolished. The
Report (2002) states that the proposals recommended in it should be seen
as an integral part of the second generation of reforms, aimed to meet
India’s strategic needs, i.e., to accelerate the growth rate while
meeting the challenges of globalisation. Various
eminent committees, viz., the Chelliah Committee and the Parthasarthi
Shome Committee have recommended an open, transparent tax system, with low
tax rates, minimal exemptions and effective tax administration (Report
2002).
Highlights of Current Economic Scene AGRICULTURE The
Central government has authorized the State Trading Corporation (STC) to
import 5 lakh tonne of wheat from global market to contain the supply
and price crisis in the country. The duty free imports are to be done
exclusively at the ports of
While the values for the palm group of oil have been cut by $ 3 a tonne, for crude Soyabean oil, the reduction is $ 8 per tonne. While reducing the values, the Centre has also ensured that the difference in the base price between crude palm oil and RBD (refined bleached deodourised) palmolein remains $ 25 a tonne. Chilli
production in the 4 major states – Andhra Pradesh, Karnataka, Domestic
cotton output is estimated to fall in 2005-06 as compared to that during
2004-05 owing to unfavourable weather. The Union government has put forth the proposal to allow 51 per cent foreign direct investment (FDI) in retailing of foods in areas like dairy, marine, poultry, fruits and vegetables. While 100 per cent FDI is already allowed in food processing, investment is restricted in retailing to select plantation crops and alcoholic beverages. According
to the global organisation INDUSTRY Overall Assocham
has projected that the contribution of the manufacturing sector to GDP,
which is currently staggering at around 17 per cent, will enhance
substantially. For the projected growth to be achieved the chamber has
suggested creating a feasible environment for higher investments,
technological development, especially in the textiles, engineering, auto
components and machine tools industries, lowering of manufacturing costs
to enable industries to face global competition, meeting basic
infrastructure needs of the industries to help diversification in export
manufacturing. The manufacturing sector has the potential to create 25
million new jobs by 2008-09, with machine tools, auto components,
pharmaceuticals, engineering, textiles providing strong growth impetus
within the sector. Pharmaceuticals The
National Pharmaceutical Pricing Authority has cut the prices of 112
formulations and has increased the price of 13. The revised prices would
become effective within 15 days from the date of notification in the
official gazette or receipt of the non-ceiling price. INFRASTRUCTURE
The growth of infrastructure industries has declined marginally to 4.7 per cent in December 2005 from 4.8 per cent in the same month of the previous year mainly on account of a sharp decline in crude oil output (a negative growth of 8.1 per cent) and poor performance of the power sector (growth generation fell from 4.4 per cent to 2.9 per cent). The growth would have been much lower but for the good performance of the cement industry (rise of 13.4 per cent compared to 8.3 per cent) and a rebound in steel production (from 3.8 per cent to 6.7 per cent). Energy
The
empowered group of ministers has approved the bids of GMR-Fraport and
GVK-South Africa consortia respectively for modernisation of the
INFLATION
The annual point-to-point inflation rate based on wholesale price index (WPI) has gone up to 4.51 per cent for the week ended January 21, 2006 from 4.40 per cent during the previous week. The inflation rate was higher at 5.43 per cent in the corresponding week last year. The WPI in the week under review has remained unchanged at the previous week’s level of 197 (Base: 1993-94=100). The index of primary articles’ group (weight 22.02 per cent) has declined marginally by 0.1 per cent to 194.3 from the previous week’s level of 194.4, due to a decline in the price index of non-food articles. The index of non-food articles has gone down by 0.3 per cent to 176.7 from 177.2 in the last week, mainly due to lower prices of logs, timber and copra. The index of ‘fuel, power, light and lubricants’ group (weight 14.23 per cent) has remained unaltered at the previous week’s level of 311. The index of ‘manufactured products’ group constituting the maximum of 63.7 per cent of total weight, has risen marginally by 0.1 per cent to 172.5 from the previous week’s level of 172.4, mainly due to increased prices of food products, textiles, ‘chemical and chemical products’ and base metals. The latest final index of WPI for the week ended November 26, 2005 has been revised downwards; as a result both, the absolute index and the implied inflation rate declined to 198.1 and 4.48 per cent respectively, as compared to their provisional week’s level of 198.2 and 4.54 per cent, respectively. Overall,
the rate of inflation has remained reasonably contained in the range of
4 to 4.5 per cent in last two months. Moreover, the Reserve Bank of BANKING The
banking industry has unanimously voted against a de-regulation of the
savings bank deposit rates for the next one to two years. However, they
have given a go-ahead to de-regulation of small advances up to Rs 2 lakh.
This comes in wake of Reserve Bank of India (RBI) governor YV Reddy's
request to the Indian Banks' Association (IBA) to prepare discussion
papers on review and deregulation of interest rate on savings bank
deposits and lending rates on small loans up to Rs 2 lakh, in the
mid-term review of the Credit Policy for 2005-06, held in October 2005.
While the savings deposit rates are at 3.5 per cent per annum, the RBI
has mandated banks to extend loans up to Rs 2 lakh, at a rate below the
prime-lending rate (sub-PLR). According to the discussion paper
presented to the RBI recently, bankers have argued that the current
timing is not conducive for de-regulation of savings deposit rates,
given the intense liquidity crunch faced by the banking industry. As it
could result in an initial price war among banks, leading to an
asset-liability mismatch situation in their books. Informally, bankers
have agreed that 1-2 years is an appropriate time frame for
implementation of de-regulation of interest rates on savings deposit
rates, but have agreed to support the de-regulation of rates on small
loans of up to Rs 2 lakh, which are generally classified under priority
sector lending. The
Supreme Court has referred back the decision to the Bombay High Court
regarding Federal Bank taking over Ganesh Bank of Kurundwad. The Bombay
High Court has put a stay order on the proposed takeover, which was
challenged by the RBI in the apex court. The
Netherlands-based Rabo Bank, which has a presence in Bank
of Baroda has amalgamated 5 sponsored rural regional banks (RRBs) of
Rajasthan into one RRB, under the name of Baroda Gramin Bank. The
RBI is working on a proposal to reduce the statutory liquidity
requirement (SLR) of banks to 20 per cent from the current level of 25
per cent. This is in a bid to free up much needed resources to meet
requirement of the growing credit demand, as well as an attempt to
inject liquidity. Currently, banks are mandated to hold a minimum of 25
per cent of the their demand and time liabilities as SLR, which
comprises government securities, treasury bills and state government
bonds. Though pegged at 25 per cent, historically banks SLR holdings
generally has remained very high, between 40-45 per cent as banks had no
option than investing in gilts due to slow credit offtake. Currently,
the industry average of SLR holding is still at 33 per cent. However in
the changing scenario, banks are avoiding investing in gilts due to
volatility in the yield and now banks have adequate options to deploy
their resources as credit. Rather several public sector banks are now
inclined to liquidate a portion of their excess SLR to raise resources
to be deployed in credit market. Recently, Bank of Based
on the recommendations made by the Vaidyanathan Committee Report, the
government of PUBLIC
FINANCE Net
tax revenue collected is 61.7 per cent of
budget estimate BE 2005-06 during the first nine months of
financial year 2005-06. Custom
duty collection has been 90 per cent of BE of 2005-06 during
April-December 2005. Corporation tax, income tax and excise duty
collection has been around 55 per cent of their
BE 2005-06 during April-December 2005. Revenue
deficit is 83.6 per cent of BE 2005-06 during April-December 2005 and
was 82.7 per cent during the corresponding period of previous year. Fiscal deficit has increased to 71.7 per cent of BE 2005-06 during April-December 2005 as compared to 65.7 per cent in the corresponding period of the previous year. Total receipts have declined to 61.7 per cent of BE 2005-06 during April-December 2005 as compared to 69.5 per cent during April-December 2004. Total expenditure has also reduced to 64.6 per cent of BE 2005-06 during April-December 2005 as compared to 68.4 per cent during the corresponding period of the previous year. The
centre has chalked out the national e-Governance action plan for
implementation of various e-Governance initiatives. One of the key
mission projects under this is e-delivery of tax payer services by
income tax department. The objective is to provide taxpayer services
through website as a single window 24 hours a day, 7 days a week. The
computerization program in income tax department has three major
components- (1) e-delivery of taxpayer services (2) Augmentation of
departmental computer infrastructure (3) Setting up Tax Information
Network (TIN). FINANCIAL
MARKET Capital
Markets Primary
Market Indo
Tech Transformers limited is set to tap the market on February 10
through an IPO issue of 3,945,130 equity shares of Rs. 10 each for cash
at a price of Rs. 130 per equity share. The issue closes on February 16. Coal India Ltd. is planning to tap the market with its maiden IPO issue of 5 per cent paid-up capital to raise Rs. 300 crore. The entire proceeds from the IPO would be used to fund the company’s expansion programme. Development
Credit Bank, with a view to meet its capital needs is planning to issue
of public offering worth Rs. 250 crore. Secondary
Market During the week, the squaring of the long position on margin call pressure
and weak Asian markets continued to dampen the domestic bourses.
Moreover, concerns that the margins of the banks will come under pressure with the hardening
of interest rate coupled the new securitisation guidelines on standard
assets by RBI led the bank stock nosedive. The BSE sensex witnessed a decline of 1.30 per cent as it closed the
week at 9742.58 points. While, BSE Small-cap index fell by around 5.12
per cent and BSE Mid-cap fell by 1.87 per cent. Among the sectoral
indices,.
Bankex recorded
the highest negative returns at 5.71 per cent followed by consumer
durables index at 3.97 per cent and BSE PSU index at 2.85 per cent. Irrespective of the broader S & P CNX Nifty of NSE closing at 3,001.10
for the first time ever on January 31, the NSE’s S & P CNX Nifty
recorded negative returns of about 1.41 per cent during the week.
Likewise S & P CNX 500 witnessed a decline of 1.44 per cent and CNX
Midcap fell by 1.28 per cent. During
the week the FIIs have been net buyers of equities to the extent of Rs.
1089.50 crore with purchases worth Rs. 5134.29 crore and sales worth Rs.
4044.20 crore. Meanwhile, the mutual funds have been net sellers to the
extent of Rs. 76.70 crore with purchases worth Rs. 967.27 crore and
sales worth Rs. 1043.97 crore. Interestingly,
with the ongoing boom in the equity market, more and more mutual funds
are tapping the market with new funds offering (NFOs), thereby
increasing their investment in debt instruments three and half times
more than that in equity market. Mutual funds net investment in the debt
market has risen to Rs. 33,003.18 crore between April 2005 to January
25,2005, which is three and half times more than their net investment
int h equity market at Rs. 9,643.46 crore during the same period. Sebi
has formed a committee under the chairmanship of G. Anantharaman, to
study the future of the Regional Stock Exchanges (RSEs) demutualisation.
The terms of reference of the committee is to review ans examine the
futures role of the RSEs and their subsidiary post demutualisation,
keeping in view the legal requirements of the Securities Contracts
(Regulations) Act, 1956. The committee is expected to submit its report
within two months from the date of the first meeting.. Derivatives The RBI is planning to
introduce the IAS-39 standards of accounting, in a joint effort with the
ICAI. IAS-39 brings visibility in the use of derivative instruments for
investors and other financial statements users. During
the week the total turnover of the NSE’s F & O segment stood at Rs.
117229 crore with the daily average turnover of around Rs. 23445.8 crore.
Government
Securities Market Primary
Market In
the week under review, the RBI has mopped up Rs. 706.54 crore and Rs.
1250 crore through 91-day treasury bills and 364-day treasury bills,
respectively. The cut-off yield were 6.5634 per cent and 6.7421 per cent
for 91-day and 364-day treasury bills, respectively. RBI
has slashed the scheduled auction amount from Rs. 9,000 crore to Rs.
6,000 crore taking into consideration the tight liquidity conditions. It
has announced sale (re-issue) of 7.46 per cent –2017 paper for Rs.
3,000 crore and the sale (re-issue) of 7.40 per cent-2035 for Rs. 3,000
crore. Both the auctions would be conducted through a price-based
auction using uniform price method.
Secondary
Market During the week the call
rates have ranged between 6.65 per cent and 7.76 per cent. the daily
average outstanding amounts in the LAF reverse repo operations conducted
during the week stood at Rs. 2,611 crore , while RBI received average
subscription of Rs. 11,470 crore for
LAF repo auctions. The weighted average YTM of 8.07 per cent-2017 paper
closed at 7.3828 per cent on February 03 as compared to 7.3919 per cent
on January 27. The finance ministry is
likely to amend the RBI Act in the coming Parliament session by
reworking the definition of repo and reverse repo envisaged in the Act.
The definition would be changed in a manner to facilitate the market
participants or the banks in the transaction exercise. Bond
Market In its final guidelines on
securitisation, RBI has decided to permit a ‘call option’ on the
securities issued by SPV floated for securitisation of an asset
portfolio. However, ‘put option’ would continue to be disallowed for
these securities. The finance ministry
released the report of the Expert Committee on corporate bonds and
securitisation formed under the chairmanship of Dr. R.H.Patil. The
recommendations put forth by the committee are as follows: ·
Uniform
stamps duty on corporate bonds across the country. ·
Tax
deduction at source rules on corporate bonds to be similar tot he ones
applicable on government securities. ·
In order to incentivise
corporates to raise a part of their requirement through bonds,
the time and cost for public issuance and the disclosure and listing
requirements for private placements should be reduced and made similar. ·
Banks should be allowed to issue
bonds of maturities of over 5 years for assets liability matching
purposes. ·
Scope
of investment by provident/pension/gratuity funds and insurance
companies in corporate bonds should be enhanced and rating should form
the basis of such investments rather than the category of issuers. ·
In
order to encourage banks to invest in corporate bonds, investment in
corporate bonds should be considered as part of the total bank credit
while computing credit-deposit ratio by the banks. ·
Immediate
creation of a centralised database of all bonds issued by corporates. ·
Develop
online order matching platforms for trading of corporate bonds. Foreign
Exchange Market During
the week, the rupee has depreciated against the dollar from Rs. 44.14
per dollar as on January 30 to Rs. 44.23 dollar as on February 03. The
six-month forward premia closed at 2.10 per cent on February 03 as
compared with 2.72 per cent on January 27. Meanwhile, the Fed has raised
its rate for the 14th time by a quarter percentage to 4.5 per
cent on February 01. Commodities
Futures derivatives On
January 31, the gold prices hit its all-time high value in both
international and domestic markets as speculation that the mounting
tension over Ahead of the Union budget,
the country’s metal trade representatives have urged the government to
eliminate the import duty on mental such as copper from 10 per cent and
other local duties to be halved to 8 per cent from 16 per cent, for
soaring world prices have pushed some units to the brink on closure. NCDEX has
launched sponge iron futures on January 30. The initial contracts
available for trading will expire in March and April and subsequent
contracts will be introduced on the 10th of the every month. NCDEX, on
February 01 has launched SMS alert service, which will be useful for
members, traders, investors and farmers to monitor market prices of
commodities. The data will consists of spot commodity market prices that
could enable specific commodity traders to trade at uniform prices. INSURANCE Consequent
to the completion of the acquisition of entire equity capital of AMP, CREDIT
RATING Icra has assigned a ‘LAA+’ rating to the proposed Rs 10 billion subordinated bond programmes of UTI Bank Limited (UTI Bank), while the ‘LAA+’ rating of the outstanding subordinated bonds programme of UTI Bank has been reaffirmed. The agency has also assigned an ‘A1+’rating to the Rs. 25 billion certificate of deposits programme of UTI Bank. The ratings factor in UTI Bank’s improving profitability supported by increase in net interest income, healthy growth in fee income, focus on strengthening its asset quality and adequate capitalisation. The ratings are also driven by the strong position of the bank in domestic debt arrangement business, which enables the bank to attract new businesses and clients. Icra has reaffirmed the short term rating of ‘A1+’ assigned to the Rs. 120 million commercial paper programme of Hindustan Latex Limited (HLL), as well as the ‘LA+’ rating assigned to the Rs. 250 million long- term debt programme of HLL. The ratings take into account HLL’s dominant position in the domestic condom market translating into strong cash accruals, a favourable financial risk profile and comfortable liquidity. The long-term rating is however constrained by the high concentration of HLL’s revenues on the government segment and the continued pressure on realisations from the competitive domestic non-government segment, characterised by low entry barriers, low volume growth and large surplus capacities. Icra has reaffirmed the ‘A1+’ rating assigned to the Rs. 200 million commercial papers programme of Rajasthan Spinning & Weaving Mills Limited (RSWML). The rating takes into account RSWML’s strong presence in the domestic blended yarn market, increasing volumes in the export market and capacity expansions in cotton yarn Icra has withdrawn the rating of ‘A2+’ assigned to Om Logistics Limited’s Rs.50 million commercial paper programme, as there is no amount outstanding against the rated instrument. Likewise, the agency has also withdrawn the ‘MAA’ rating assigned to the Rs 35 crore preference share programme of Cholamandalam Investment and Finance Company Ltd., since the debt instrument has been fully redeemed by the company, and there is no outstanding against the said debt instrument. Crisil
has assigned an ‘AA’ rating to the Rs. 2.5 billion Tier-II bond
issue of UCO Bank, while the agency has reaffirmed the ‘AA’ rating
to Rs. 1.5 billion Tier-II bonds and ‘P1+’ rating Rs. 50 billion
certificate of deposit programme of UCO Bank. The ratings continue to
benefit significantly from the majority ownership by the government of Crisil
has assigned 'Grade 4' to the Pre-Sea Training Course for the General
Purpose Ratings conducted by Crisil
has reaffirmed its 'AA+/Stable' ratings on National Hydroelectric Power
Corporation Limited (NHPC) two different bond issues worth Rs. 10
billion and Rs. 5 billion, respectively. debt programmes. Crisil's
rating on NHPC is based on ownership and support from the government of Following Apollo Tyres limited acquisition announcement of 100 per cent equity in South Africa based Dunlop Tyres International (Pty) Limited in an all-cash deal of Rs. 2900 million, Crisil has placed the ratings of the company under Rating Watch with Development Implications. It has assigned ‘AA-‘ rating to the Rs. 234.8 million non-convertible debentures and ‘P1+’ rating to the company’s Rs. 2600 million commercial paper programme under Rating Watch with Development Implications Crisil
has downgraded its rating on the Rs. 1 billion non-convertible debenture
programme of Electrosteel Castings Limited (Electrosteel) from
'AA+/Negative' to 'AA/Negative'. The rating action follows
Electrosteel's announcement of Rs 4030 million capital expenditure
programme to set up cooking coal and sinter plant projects. CORPORATE
SECTOR Aviva
Plc has acquired 51 per cent share in the Wipro
Technologies has won a $ 27 million five-year software services contract
from General Motors. Wopolin
Plastics, formerly known as Bajaj Plastic, has announced a lockout at
its Dr
Reddy’s Laboratory has entered into research collaboration with
Argenta Discovery of the Tata
Motors has reported a total sale of 46,635 vehicles (including exports)
for January 2006, up 19.6 per cent from January 2005. The company’s
commercial vehicles sales in the domestic marketing stood at 21,301
units, up 25.3 per cent. Medium and heavy commercial vehicles sales
stood at 13,086 units while light commercial vehicle sales were 8,214
units. Apollo
Tyres has acquired Dunlop Tyres International for Rs 29 crore in all
cash deal. Maruti
has reported 3.2 per cent rise in total sales of 50109 in January 2006
against 48,544 units sold a year ago. General
Motors India has reported flat sales at 2,592 units in January 2006
against 2,586 units a year ago. The sale included 1990 units of
Chevrolet Tavera and 602 units of the sedan Opra. Honda
Siel Cars Limited, manufacturer of premium and luxury cars in Ford
Tata
Motors has sold 21,301 commercial vehicles (CV) in the domestic market
during January 2006, posting a 25.3 per cent growth over the same period
previous year and the passenger car sales was up by 15 per cent to
20,765 units. The total exports of cars and CV’s at 4,569 units up by
15.9 per cent over the same period previous year. ACC
Limited has despatched 16.48 lakh tonne of cement in the month of
January 2006, registering a 9 per cent growth over the same period a
year ago. Its cement production went up by 10 per cent to 16.46 lakh
tonne. Gujarat
Ambuja Cements despatched 12.55 lakh tonne of cement in January 2006
posting a 14 per cent growth over January 2005. The company’ cement
production risen by 17 per cent to 12.65 lakh tonne. Aditya
Birla Group companies Grasim Industries and UltraTech together posted a
12.8 per cent growth in cement despatches at 27.3 lakh tonne during
January 2006. The total production by both companies in January 2006
stood at 27 lakh tonne, up by 10.3 per cent over January 2005. Electrical
and communication cables manufacturer Finolex Industries posted 17 per
cent increase in net profit to Rs 14.7 crore for October-December 2005. Jindal
Steel and Power has reported 2.6 per cent drop in net sales to Rs 625
crore for the quarter ended December 2005 however, net profit rose
marginally by 2 per cent at Rs 126 crore. Mahindra
and Mahindra has registered a 23 per cent rise in total sales at Rs
2,186 crore for quarter ended December 2005. The profitability of the
automotive segment has improved in the last three quarters, owing to
price hikes and good sales by the company. Its net profit surged by 75
per cent to Rs 234 crore. Hexaware
Technologies posted 41.7 per cent increase in net profit at Rs 30 crore
for the fourth quarter ended December 2005. It has posted net profit of
Rs 77.5 crore for the year ended December 2005 as compared with Rs 43.8
crore for the previous year. Transport Corporation of India has reported 15 per cent rise to 223 crore for quarter ended December 2005 and net profit galloped by 67 per cent to Rs 5.2 crore over the same period previous year. Bongaigaon
Refinery and Petrochemicals reported a 35.5 per cent rise in the total
income to Rs 1598 crore for the quarter ended December 2005. However,
its net profit declined by 8.4 per cent at Rs 26.2 crore. LABOUR The New Pension Scheme (NPS), which proposes a structural shift from the ‘defined benefit’ to ‘defined contribution’ system, may exclude government staff from its purview which account for just three per cent of the total organised workforce. The Bill, in its present form specifically includes the central government employees who have joined government services after January 1, 2004. The left parties have strongly opposed to the NPS, under which contributions are defined, but benefits depend on market returns and the fund managers expertise. Apparently, the left’s concern is to protect the central government employees, one of its main constituencies. Therefore, the left had demanded that opting for NPS should be voluntary for government employees. However, an amendment to the Bill by deleting a particular section concerning central government employees is difficult, since the contribution of new government employees and a matching one by the government have been set aside in a public account. Pending the enactment of the Bill and appointment of pension fund managers, the government pays interest at the rate of 8 per cent to employees’ money parked in the public account. The National Rural Employment Guarantee Scheme (NREGS) of the government, which has proposed to provide 100 days of employment to every rural household per year, has been launched on February 2, 2006 initially in 200 districts. It is proposed that the entire country will be covered in four years. Under the programme, the government is bound to provide jobs within 15 days of receiving an application or else pay an unemployment allowance to the applicant. The government has provided Rs 100 crore to each district for the purpose. The activities under the programme include water conservation, watershed management, drought and flood-proofing, forestry, land development, rural connectivity and wasteland development. To work out the programme, a sum of Rs 10,000 crore will be needed for the remaining months of the current financial year. While Rs 5,500 crore will come from the Sampoorna Gramin Rozgar Yojana fund, Rs 4,500 crore will be obtained from the Food-for-Work scheme. SOCIAL
SECTOR Education The forthcoming budget for 2006-07 may see an increase of around 50 per cent in the allocation of social sector schemes. The budgetary allocation for 2005-06 was Rs 39,766.56 crore, which is now expected to be scaled up to Rs 58,795 crore for the next financial year. However, there are 300 centrally sponsored schemes, which might see only a token increase in their respective allocations. The bigger schemes, however are expected to gain a considerable increase in their allocations. The budgetary allocation for Sarva Shiksha Abhiyaan is pegged at Rs 11,000 crore as compared to Rs 7,800 crore in 2005-06, an increase of 41 per cent. In the case of Integrated Child Development Services, a 14 per cent increase is expected from Rs 3,510 crore in 2005-06 to Rs 4,000 crore in 2006-07. Similarly, other schemes like National Horticulture Mission and the Micro Irrigation Scheme may receive increases of 40 per cent and 37 per cent in their respective budget allocations for the next fiscal year. Likewise, the Rural Housing Scheme may get a 24 per cent increase in its budgetary allocation. Housing After
HDFC increased its interest rates on housing loans by 50 bps, IDBI hiked
its retail lending rates by 25 basis points. Most
of the housing finance companies (HFCs) of the country are currently
under pressure on their cost of funds. On one hand, the hike in reverse
repo rate by the RBI has put the margins under pressure, while on the
other hand, the national housing bank (NHB) in its recent guideline has
increased the risk weightage on housing finance to commercial real
estate properties from 100 basis points to 125 basis points (bps). To
make the situation worse for HFCs, the RBI has formed stringent
guidelines for raising international resources through the foreign
currency convertible bond (FCCB) route. However, the FCCB route will not
affect Housing Development Finance Corporation (HDFC), the largest
player in this sector, as it has maintained a balance sheet of Rs 500
crore for the last five years. The increase in the risk weightage to 125
bps would mean that HFCs have to access more resources to maintain the
capital adequacy ratio (CAR) of 12 per cent. With the FCCB route now
impossible for raising resources the HFCs are now faced with the option
of raising money domestically where costs of funds have started moving
upwards. EXTERNAL
SECTOR The commerce ministry has officially backed exporters demand for scraping FBT and service tax incidence. In its pre-Budget memorandum submitted to the finance ministry, the minister has said that these taxes affected the competitiveness of exporters in the world market and so should be done away with. According
to ICRA report, INFORMATION
TECHNOLOGY The world’s largest automobile company General Motors (GM) has announced a $15 billion, five-year deal to outsource IT services to several companies and Wipro is one of the Indian companies to be awarded work in this contract. The biggest chunk of this deal worth $7 billion has been cornered by EDS. Wipro has won a $27 million five-year contract. Automotive revenues currently account for nearly 35 per cent of Wipro’s $180 million revenues in the manufacturing vertical.
*These statistics and the accompanying review are a product arising from the work undertaken under the joint ICICI research centre.org-EPWRF Data Base Project. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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