Current Economic Statistics and Review For the Week 
Ended April 22, 2006 (16^th Weekly Report of 2006)

Theme of the week:

Organic Farming: Turning to Nature for Healthier Growth**

Introduction

Inception of agricultural revolution was marked with the invention of a seed drill and application of manure using a horse-drawn hoe in England in the early 19^th century. It progressed over the period with the discovery of variants of fertilisers (for example, superphosphate and nitrogen fertiliser), various insecticides, agrochemicals, manufacture of tractors and associated farm machinery. This modern approach to cultivation resulted in higher production, thus succeeding in alleviating hunger to a large extent across the globe and India was no exception.

Modern farming techniques (use of fertlisers, pesticides, high yielding variety seeds, etc.), which resulted in the ‘Green Revolution’, have been a cornerstone of agriculture sector’s achievements in India . By improving the foodgrain yield from 805 kg per hectare in 1969-70 to 1731 kg per hectare in 2003-04, the Green Revolution’ has transformed the country from a stage of food deficiency to one of relative self-sufficiency in food. However, this chemical and irrigation intensive farming system has not only raised productivity but has also resulted in soil erosion, water contamination, pesticides poisoning, depletion of bio-diversity, etc., forcing farmers to apply ever-increasing doses of fertilisers and to make water supply available on a continuous basis, in order to maintain the productivity levels. Consequently, making them to borrow more for the adequate provision of irrigation facilities and more fertilizers and thus, trapping farmers in a vicious circle of debt and distress, besides rendering the agriculture system unsustainable. Controlling this situation requires implementation of such a farming technique, which has the capacity to restore the natural balance as well as to reverse the rate of diminishing returns in agriculture output. Organic agriculture is considered one of such solutions.

Concept

Organic agriculture is one among the broad spectrum of production methods, that focuses on ecological tenets as the basis for crop production and animal husbandry.  The philosophy behind the concept of organic farming is to feed the soil rather than the crops to maintain soil health and it is a means of giving back to the nature what has been taken from it. Very often it is mistakenly considered as synonymous to traditional agriculture or sustainable agriculture or method of using organic manures instead of synthetic fertilizers / pesticides for crop production and protection. According to one of the definitions, the term "organic" is best thought of as referring not to the type of inputs used, but to the concept of the farm as an organism, in which all the components - the soil minerals, organic matter, microorganisms, insects, plants, animal and humans - interact to create coherent, self-regulating and stable whole. Reliance on external inputs, whether chemical or organic, is a reduced as far as possible. Organic farming is (w) holistic production system[1]. The Codex Alimentarius Commission, a joint body of Food and Agriculture Organisation of the United Nations (FAO) and World Health Organisation (WHO) defines “organic agriculture as holistic food production management system, which promotes and enhances agro-ecosystem health, including biodiversity, biological cycles and soil biological activity.  It emphasizes the use of management practices in preference to the use of off-farm inputs, taking into account that regional conditions require locally adapted systems.  This is accomplished by using, where possible, agronomic, biological and mechanical methods, as opposed to using synthetic materials, to fulfill any specific function within the system”. The term ‘organic’ reveals that the products follow the defined standard of production and handling and are certified by a duly constituted certification body or authority. ‘The organic label is, therefore, a process claim rather than a product claim. It should not necessarily be interpreted that the food-products from organic farming are healthier, safer or all natural. It simply means that the products follow the defined standard of production and handling, although surveys indicate that the consumer conducts organic label as an indication of purity and careful handlings.’ [P. Ramesh et al, (2005), Pg: 562]

Thus, the promotion of soil fertility, biodiversity (e.g. native flora and fauna), locally- adapted production methods and the minimal usage of chemical inputs, lie at the core of organic agriculture. Such methods and the cultivation of diverse crops stabilise the delicate eco-systems in the tropics and reduces drought sensitivity by improving water holding capacity of soil and help in pest and crop disease management. Organic production lowers the risk of declining yield, stabilises returns, and therefore, enhances food security of small farmer families. The impact of organic agriculture on natural resources favours interactions within the agro-ecosystem, which are vital for both agricultural production and nature conservation through waste recycling, carbon sequestration and nutrient cycling.

Organic Farming: Global Scenario

According to the latest statistics provided by 'The World of Organic Agriculture – Statistics and Emerging Trends 2006'[2], organic agriculture has been practiced in approximately 120 countries around the world, with more than 31 million hectares of farmland being under organic management in 2006. The coverage has exceeded by around five million hectares as compared with the previous year. Besides, it is believed that uncertified organic farming is also in practice in more number of countries.  In terms of organic land, Australia , with 12.1 million hectares, has continued to hold top most position in 2006 as well: a trend witnessed in the last two years, followed by China (3.5 million hectares) and Argentina (2.8 million hectares). Regarding the share of organic farmland in comparison with the total agricultural area, Austria , Switzerland and Scandinavian countries lead the way during the same period. In terms of the total number of organic farms, Mexico has recorded a maximum of 1.2 lakh organic farms, followed by Indonesia (45,000) and Italy (36,639) in 2006 (Annexure 1). Land coverage under organic production continent-wise has been depicted in Chart 1.

Australia / Oceania Continent:

Australia and New Zealand are the two major countries involved in organic production. Principal organic products in Australia consist of fruits and vegetables, beef and dairy products, sheep meat, grain and wool, while that in New Zealand include kiwifruits and apples. The major export destination for organic products are the European Union countries in general and United Kingdom (UK), Italy , France , Germany , Switzerland and Netherlands for Australia . On the domestic market front, organic produce receives a substantial price premium over that of conventionally grown produce. Imported products are not only food and drinks, of which more than half is processed, but increasingly non-edible items such as cotton and personal care products are imported, primarily from New Zealand , the USA and the UK . Government support in the form of subsidy has not been provided in any of these countries.

Latin America :

All the Latin American countries practice organic farming to some extent or the other; however, Uruguay , Costa Rica and Argentina have the highest proportion of organic land. Productions of commodities like coffee beans, sugar, bananas, cereals and meat is mainly undertake for export purposes. While official funding for research and teaching is provided in countries like Brazil , Costa Rica and some other countries, Argentina and Chile have official export agencies helping producers to attend international fairs and other export related activities. Seed funding for activities related to organic farming are also made available from international aid agencies especially from countries like Germany , Netherlands and Switzerland .

European Union (EU):

Among the EU countries, Italy has the highest number of organic farms and the largest organic area. In most countries of Europe and particularly the European Union, organic farming is supported with legislation and direct payments. Though this has encouraged organic production to a larger extent among countries in this group, EU is also the major export destination for organic products produced in different countries across the world.

North America :

Distinctive feature of this market is provision of a guarantee to consumers that those organic products using the labelling imply that specific practice has been followed during the production of those products. The study has estimated the sales of organic food and drink at US $ 14.5 billion in 2005. With the consumer demand rising continuously, the region is expected to attract maximum revenue in the global organic food market.

Asia

The principal countries involved in organic production are China , India and Russia . China has reported major increase in the area covered under organic cultivation in 2006, where nearly three million hectares of pastoral land has been recently certified. In recognition of the significant growth in organic production in China , the BioFach China project - a two-year public-private partnership between Nürnberg Global Fairs and the German Development and Investment Society (DEG) - has been announced which would commence at the end of November 2006 in Shanghai in an effort to spur this growth and development even further. Exports from the continent largely comprise fresh produce and low-value commodity crops. Recently, aquaculture, particularly shrimp farming, is becoming popular, with projects in China , Indonesia , Thailand and Vietnam . However, procedures regarding market regulation and certification of organic products are not very well developed in the region resulting in lower market returns for these products.

Africa

An important factor in African continent that has encouraged the organic production is the demand for organic products in the industrialised countries. Another motivation is the maintenance and building of soil fertility on land threatened by degradation and erosion. Market for organic produce in the African continent is very small except in Egypt and South Africa , due to low-income levels and an undeveloped infrastructure for inspection and certification. Most certified organic production is geared towards export markets, with the large majority being exported to the EU, which is Africa ’s largest market for organic agricultural produce. At present Tunisia is the only African country with its own organic (EU compatible) standards, certification and inspection system.

Organic Farming: The Indian Context

The roots of organic agriculture in India can be traced back to the Vedas of the “Later Vedic Period”, 1,000 BC to 600 BC[3]. In the Indian context, starting of organic agriculture in India  was in 1900 by Sir Albert Howard, a British agronomist in North India who studied soil-plant interactions and developed what came to be known as Indore Method of aerobic compost, Bangalore method of anaerobic compost (Archarya, 1934), NADEP Compost (ND Pandari Panda,Yeotmal, 1980); he initiated organic agriculture in India. However, commercial organic agriculture, as practiced today, is still at a nascent stage. India has about 110,000 hectares of land under organic management, which is miniscule - only 0.06 per cent of total agriculture land in the country (Annexure 1). The total exports of organic products from the country are estimated at around Rs 80-90 crore, which also forms a miniscule part of global organic market. Though very nascent, the Indian organic sector is growing rapidly and has already made inroads into the world organic market in certain key sectors such as tea, coffee, spices, fruits and vegetables (mainly semi-processed pineapple, frozen and dried banana, etc.), cotton, cereal (mainly Basmati rice), neem, dried nuts, oilseeds (sesame), pulses and sugar (cane). In fact, the country has around 65 per cent of arable land, which is mainly rain-fed, wherein almost negligible amount of fertilizers are used in cultivation process. For instance, farmers in the backward and tribal areas, in the hills of north-eastern region often use organic manure as a source of nutrients that are readily available either in their own farm or in their locality. Thus, the region, by default, follows organic farming techniques since many years.

Considering the natural potential available for organic production in the country and its growing consumer preference for the organic products at the global level, the government has taken various initiatives to boost organic farming in the country. To state a few of them :

*        The Planning Commission constituted (2000) a steering group on agriculture who identified organic farming as a national challenge and suggested that it to be taken in the form of a project as a major thrust area under the 10^th five year plan. Accordingly, Ministry of Agriculture has formulated a scheme, which envisages the setting up of a National Institute of Organic Farming (NIOF) which would be responsible for the promotion of organic farming, setting standards wherever necessary, expanding the regulatory mechanism to cover the requirements of small and marginal farmers, etc.

*         Ministry of Commerce has launched a ‘National Programme for Organic Production (NPOP)’ in May 2001 for export purpose and has established a regulatory mechanism, which covers fixing of standards for organic cultivation, accreditation of certification agencies and inspection etc. NPOP standard has got equivalency with the standard of EU commission in 2005 and now Indian standard is acceptable in European Countries.
In India , due to export-oriented nature of the organic industry, the statutory norms relating to organic food regulate only the organic exports and not the domestic organic food industry. The principal accreditation agencies include Agricultural and Processed Food Products Export Development Authority (APEDA), Coffee Board, Spices Board, Tea Board, Coconut Development Board, Cocoa and Cashew nut Board. Apart from these agencies, several other certification and inspection agencies are also established, which are responsible for strict compliance of National Standards of Organic farming. They prescribe specific documents to be maintained at the level of farmers\farmers group, minimum conversion period after inspection of farm and other details. They are also authorised to issue necessary certificate of organic production to the farmers and grant a license to use logo ‘Indian Organic’- an authentication mark- to exporters and processors of organic products.

*         Various government agencies like APEDA, Export-Import Bank are involved in promoting organic products by participating in international conferences. APEDA has identified exclusive Agri-Export Zones (AEZ) for organic produce in some part of the country, such as organic pineapple in Tripura.

Market Situation

The market activities are concentrated around exports of organic products rather than domestic consumption. Major domestic markets consist of metropolitan cities like Mumbai, Bangalore , Delhi , Chennai and Hyderabad . The consumers of organic food mainly belong to upper-middle class or upper class families, who generally give preference to organic vegetables and fruits. The market has not grown large enough so far due to lack of marketing initiatives from key players (producers, traders, NGOs, etc.), low awareness regarding organic products among customers and their higher prices (Table 2).

Impediments:

1.      There are many areas in India , where farmers practice crop rotation and inter planting and use of crop residues, manures, legumes, neem, etc. to grow crops, which are essentially organic in nature. However, their produce has not yet been classified as organic and hence the farmers have failed to command the premium prices for their products.

2.      Lack of adequate information to farmers and consumers about the advantages of organic agriculture, products, domestic and international market information on suppliers, prices and quality and lack of easy market access, discourages farmers from undertaking organic cultivation and consumers from purchasing these products. Moreover, the production of organic food requires considerable attention, care and skills and above all, a good link with its market and small farmers cannot afford these expenses.

3.      Consumer unawareness, in addition to improper marketing, restrains the organic products from obtaining higher rates, deterring the farmers from going in for further cultivation. For instance, organic products are sold to the middleman and are being marketed along with other chemically-grown products. Sometimes the chemically-grown products which look healthy and attractive, in spite of having alarmingly high level of pesticide residue, fetches higher prices than the poorly looking-organic products due to lack of awareness among the consumers, who fail to differentiate between the two.

4. Various certifying agencies like JAS, Ecocert and IMO, self-certifying NGO like Organic Farmers Association of India (OFAI), government agencies APEDA, and different small co-operative agencies formed by the farmers - operate independently, making the process tedious. In addition, this procedure is quite expensive. Thus, small farmers, who grow maximum part of their produce organically, cannot afford to obtain these certificates.

5.      Organic food is more expensive compared to regular products, since huge cost is involved to transform chemically-processed land and free it of residual pesticides. Besides, post harvest techniques need to be contamination free, that is, food handlers, processors, and retailers must stick to the standards that maintain the integrity of organic agriculture products, resulting in hiking the market price of the final organic products.

6.      The infrastructure and competencies to support organic conversion are still generally lacking as insufficient attention has been provided towards standards and certification development, production activities and proper handling of market supply chains. Inadequate training facilities, organic farmers’ field schools and lack of multidisciplinary research work dissuade farmers from implementing the organic farming system and its further extension.

7.        Organic agriculture has not been given adequate attention in agricultural policy. Firstly, there is no government assistance for the promotion of organic agriculture, as it exists for conventional agriculture in the form of subsidies, agricultural extension services and official research. Secondly, during the transition period of 2-3 years, farmers are not able to use any inorganic fertilizers or agrochemicals, rendering the crop yield to decline. As a result, farmers have to suffer losses. Thus, in the absence of any kind of compensation to support the farmers during the transition period, organic farming obviously becomes absolutely unattractive.

Conclusion:

The organic production system is designed to enhance biological activity within the whole production system and maintain long-term soil fertility, duly relying on renewable resources in the locally organised agricultural systems. The benefits of organic farming are relevant both to developed nations (environmental protection, biodiversity enhancement, reduced energy use and CO2 emission) and to developing countries like India (sustainable resource use, increased crop yields without over-reliance on costly external inputs, environment and biodiversity protection, etc.). Considering the potential environmental benefits of organic production and its compatibility with integrated agricultural approaches to rural development, organic agriculture may be considered as a development vehicle for developing countries like India . However, organic farming cannot be practiced on a massive scale due to limited availability of the resources, and also reliance on only organic produce may not be sufficient for a country to fulfill its food requirement and food-security. Hence, it can be inferred that organic and inorganic farming should compliment each other. Therefore, identifying the niche areas and crops for organic farming, supplementing the limited organic inputs by other nutrient sources like animal dung, crop residues, bio-solids from agro industries and food processing wastes etc. and arranging for the marketing of those organic products which have export potential, would help the country to reap the benefits of organic farming to the fullest.

(*: This note has been prepared by Miss Pallavi Oak with the inputs from Abhilasha Maheshwari)

References:

1.                  Bhattacharyya P. and G. Chakraborty (2005), ‘Current Status of Organic Farming in India and other Countries’, Indian Journal of Fertilisers Vol.1 (9).

2.                  Prasad Rajendra (2005), ‘Organic farming vis-à-vis modern agriculture’, Current Science, Vol. 89.

3.                  P. Ramesh, Mohan Singh and A. Subba Rao (2005),‘Organic farming: Its relevance to the Indian context’, Current Science, Vol. 88.

4.                  Rai (Dr.) Mangala (2005), Millennium Guest Lecture on ‘Organic Farming: Potentials And Strategies delivered at S.V. College , Tirupati, June.

5.                  The International Federation of Organic Agriculture Movements (IFOAM), the Swiss Research Institute of Organic Agriculture FiBL, and the Foundation Ecology & Farming (SÖL), Germany (2004, 2005, 2006), ‘The World of Organic Agriculture Statistics and Emerging Trends’.

Highlights of  Current Economic Scene

AGRICULTURE

The central government has managed to purchase just 6,40,000 tonne of wheat during March 20  - April 9, 2006 as against 1.3 million tonnes a year ago on account of current open market prices exceeding the government’s minimum support price (MSP) of Rs 650 per quintal by almost Rs 100 - Rs 150 per quintal. Wheat procurement started in Madhya Pradesh and Rajasthan on March 20, 2006 and in Punjab and Haryana on April 01, 2006.  The maximum quantity has been procured from Haryana - 4,20,000 tonnes, which is lower by 29 per cent against the wheat procured during the corresponding period of the last year. While 2,30,000 tonnes has been procured from Punjab, down by 63.5 per cent compared to a year ago, the lowest has been purchased from Madhya Pradesh to the extent of only 20 tonnes as against 1,20,000 tonnes in the corresponding period last year, in spite of relaxation of quality norms for procurement by the government in the state.

The Ministry of Agriculture has discarded Punjab government’s proposal to divert about a million hectares land from cultivation of staple cereals to other crops. The government of Punjab has put forth a crop diversification proposal replacing paddy-wheat rotation with crops like oilseeds and pulses on about one million hectares. For this, it had offered compensation to farmers at the rate of Rs 12,500 per hectare. This would have involved a total expenditure of Rs 1,280 crore, which the state wanted the Centre to bear.  However, ministry of Agriculture has rejected the proposal on the grounds of unfeasibility of providing 100 per cent subsidy for cultivation of oilseeds and pulses or other crops, especially in absence of any guarantee that the farmers would not switch back to paddy-wheat cultivation after a while.   

The records available with the national egg co-ordination committee (NECC) have revealed that the poultry industry in Maharashtra , has suffered a loss of around Rs 8,000 crore owing to bird flu, since February 2006. There are also reports of seven chicken farmers committing suicide. The government of Maharashtra has announced a package of relief and the Reserve Bank of India has also announced certain concessions in respect of bank loans. However, its implementation at ground level is yet to take place.

The prices of live chicken that hit rock bottom last month amidst bird flu scare have begun to move upwards with thee broiler prices touching to Rs 30 a kg. As per the State Broiler Co-ordination Committee (BCC) in Tamil Nadu, the production cuts resorted to by the poultry producers immediately during February and March 2006 have triggered the current price recovery for the live birds. The ending of religious austerities in the Hindu calendar as well as Easter celebration have also contributed to this price hike to some extent.

A bumper onion harvest has caused a steep fall in onion prices in Maharashtra , compelling the farmers to sell onion at an all time low price of 10 paise per kg. However, at the retail level, same onions have managed to fetch the price of Rs 5 per kg. Onion growers in the state have incurred losses of around Rs 500 per quintal and the situation has forced many of the onion farmers to commit suicide. The state government has announced a relief-package of Rs 30 crore for onion growers; however, the farmers have demanded to announce a minimum support price for onions in the state.

The Centre has planned to set up a single investment window to approve economic zones for agriculture, food processing, horticulture, medicinal plants and rural business hubs to boost exports and generate employment opportunities in the country. The move aimed at simplifying the process for setting up these zones, which is currently controlled by five different ministries namely, ministries of commerce, agriculture, food processing, panchayati raj and health. The plan costing Rs 60-70 crore would seek funding either from National Horticulture Mission or from the ASIDE fund (Assistance to States for Infrastructure Development). 

A comprehensive long-term rehabilitation package would be announced by the central government in two months, targeting 30 districts in four states, where a large number of suicides by farmers have been reported in the recent past. The package would cover 15 districts in Andhra Pradesh, 6 each in Maharashtra and Karnataka and 3 districts in Kerala. The package is likely to include a pilot Modified National Agricultural Insurance Scheme (MNAIS) to ensure proper linkages between credit, insurance and risk cover. The package would comprise of measures related to credit, insurance, irrigation, productivity and marketing of the farming community.

In the backdrop of recent outbreak of H5N1 strain of avian flu, the National Commission on Farmers (NCF) has demanded to set up of a National Agricultural Biosecurity Fund, which would be used for establishing an Offshore Genetic Screening Centre (OGSC) for animals. The fund worth Rs 1,000 crore would also be utilised for strengthening infrastructure for sanitary and phyto-sanitary measures and upgrading facilities for plant, animal and fish quarantine. The Commission has also sought establishing National Agricultural Biosecurity System comprising National Agricultural Biosecurity Council (NABC), National Centre on Agricultural Biosecurity (NCAB) and National Agricultural Biosecurity Network (NABN), which would deal with analysis, aversion and management of risks apart from setting up an early warning system.

The state government of Maharashtra has proposed to amend the Maharashtra Agricultural Produce Marketing Act to allow contract farming. The import aspect of the proposed amendment is the exemption of the market fee on produce covered by contract farming agreements with a condition that the produce should be sold outside the market yard. The amendment is expected to encourage the food industry and retail majors in the state.

INFRASTRUCTURE

Petroleum and Petroleum Products

Reliance and Schlumberger have approached the finance ministry to exempt surveys and exploration of oil and gas from the purview of service tax on the ground that oil companies like Oil and Natural Gas Corporation Ltd (ONGC) and Indian Oil Corporation (IOC) do not allow them to factor in the tax for undertaking such surveys. In case the survey is within Indian territory , the liability to pay service tax falls on the company which provides the service, while in case of an off-shore survey the liability would fall on the Indian company which pays another company to undertake the survey overseas. The two companies want at least an abatement of tax if exemption is not possible.

India expects a sizeable $7 billion investment in oil exploration by 2008 from global majors like Exxon Mobil and Chevron, who for the first time have shown interest in oil exploration in the country. As many as 55 oil and gas blocks hav been offered in the sixth round of the National Exploration Licensing Policy (NELP), for which bids have to be sent in by September 2006. In comparison, an investment of $1.7-2 billion has been committed for the 20 blocks offered during the previous NELP round last year, which saw British Petroleum, Cairn and British Gas among 26 companies picking up blocks in the country.

Coal

The government has plans to going to allot 28 greenfield coal blocks with a total capacity of 5 billion tonnes, to government owned companies, in an attempt to increase coal mine exploration for power generation. Among the blocks to be allocated are Nuagoan Telisahi, in Orissa, Latehar and Gomia in Jharkhand, Parsa and Morga I and II in Chattisgarh, Mara-II-Mahan in Madhya Pradesh, Ichapurin in West Bengal and Qulte, Kunur, Lalganj and Sitarampur in West Bengal .

An Expert Committee on coal sector reforms, in Part A of its report submitted to the coal ministry, has favoured an independent regulatory mechanism for coal pricing, especially for the power sector that consumes about 80 per cent of total coal produced in the country. Coal prices at present are fixed by the coal ministry in consultation with coal PSUs Coal India Limited (CIL) and Singareni Collieries Company Ltd (SCCL), determined on the basis of costs incurred in coal production from different mines in a coal company plus a reasonable amount of profit. For the sake of evolving a pricing mechanism, the committee has divided the consumers into two categories - Class A and Class B - with the former being the power sector consumers and latter being other coal consumers. Interestingly, while the committee has favoured 60 per cent linkage for Class B consumers, the Planning Commission in its earlier report has favoured 80 per cent linkage for them.

Ports

The Tuticorin port has become the third largest in the country, after JNPT and Chennai ports, in terms of size. About the port performance, it has handled 3.21 crore TEUs (twenty foot equivalent units) of container traffic during 2004-05, 4.47 per cent higher than the previous year and cargo handled has risen by 8.4 per cent from 1.58 crore tonnes to 1.71 crore tonnes. The net surplus after tax has been a record high of Rs 73.34 crore and the operating ratio, an indicator of the efficiency, has been 39 per cent. The port net worth has reached an all-time high of Rs 522.15 crore against Rs 452.19 crore. The port is expected to grow at 20 per cent in 2005-06.

Tuticorin port has plans for a major expansion with an investment of over Rs 4,000 crore. The expansion plan will be carried out in two phases. The work in the first phase includes setting up a new terminal and dredging at a cost of Rs 835 crore, is expected to be taken up soon. The Rs 450-crore deepening of the draft to 12.8 metres, a part of the first phase of the expansion scheme under the National Maritime Development Project, has received clearance from the environment ministry. The port expects the work to be completed by December 2007 and had sought a budgetary support of Rs 225 crore for the same. The second phase of the Rs 3,300-crore expansion from 2007-2012 would involve deepening the draft to 14.5 metres for which a pre-feasibility study would be undertaken. The work order for the study had been issued and is expected to be completed in three months. – FE

The Paradip port has handled 33.11 million tonnes of traffic during 2005-06, surpassing 30.10 million tonnes handled a year ago, representing a growth of 10 per cent – the traffic handled included 21.6 million tonnes of export and 11.4 million tonnes of import.

Roads

The ambitious National Highways Development Programme (NHDP) of the government has been running behind schedule and the second phase of the project has been also suffering from cost over-run. In the first phase of NHDP, against a target of 893 km to be completed by February 2006, only 672 km could be built. The Golden Quadrilateral (GQ) project linking Delhi , Mumbai, Chennai and Kolkata, which was to be completed by December 2003, will now be completed by the end of 2007. Of the 109 projects totalling 5,001 km to be four-laned by NHAI in the GQ, only 66 projects totalling 2,931 km have been completed. In the third phase, against a target of awarding 1,276 km by February 2006, only 669 km has been awarded. The awarded costs of the NHDP-II projects in 2005 reflect an average of Rs 6.4 crore per km as against the sanctioned cost of Rs 5.14 crore per km at 2002 prices. According to the Planning Commission, the cost per km might exceed Rs 7.65 crore per km, implying a total expenditure of over Rs 50,000 crore on NHDP-II. The Planning Commission feels that the excess expenditure might crowd out development of other highways and quotes one reason behind the failure to meet targets as the land acquisition problem faced by states.

INFLATION

The annual point-to-point inflation rate based on wholesale price index (WPI) has gone down to 3.51 per cent for the week ended April 1, 2006 from 3.96 per cent during the previous week. The inflation rate was at 5.70 per cent in the corresponding week last year.

The WPI in the week under review has increased considerably by 0.4 per cent to 197.7 from 197 in the previous week (Base: 1993-94=100). The index of primary articles’ group (weight 22.02 per cent) has risen substantially by 1.3 per cent to 195.7 from the previous week’s level of 193.1, mainly due to an increase by 1.9 per cent in the price index of food articles.  The index of ‘food articles’ has increased to 199 from 195.3 in the previous week, mainly due to an increase in the prices of urad, condiments and spices, moong, fruits and vegetables, arhar, gram and bajra. Similarly, the index of non-food articles has risen marginally by 0.1 per cent to 174.8 from 174.7 in the earlier week, due to an increase in the prices of mesta, raw jute and raw cotton. The index of ‘fuel, power, light and lubricants’ group (weight 14.23 per cent) has also increased by 0.1 per cent to 316.7 from 316.3 in the previous week. The index of ‘manufactured products’ group constituting the maximum of 63.7 per cent of total weight, has too gone up a tad by 0.1 per cent to 171.8 from the previous week’s level of 171.7. The major groups, which contributed to this increase, were the textiles, ‘non-metallic mineral products’ and ‘machinery and machinery tools’.

The latest final index of WPI for the week ended February 4, 2006 has been revised downwards; as a result both, the absolute index and the implied inflation rate stood at 196 and 3.98 per cent as against their provisional levels of 196.2 and 4.08 per cent, respectively.

The average rate of inflation in the year 2005-06 has stood at 4.5 per cent. Similarly, the point-to-point rate of inflation has stood at 4 per cent, a percentage point lower than the estimated rate of 5 per cent in the Economic Survey 2005-06.

BANKING

The week-long strike called by over 2 lakh State Bank of India (SBI) employees was finally called off on April 16, 2006 after Finance Minister P Chidambaram personally intervened in the negotiations between the bank management and the unions. The government has finally agreed to hike the salary cut off point to Rs 21,040 for calculating the pension formula against the existing Rs 8,500, which is related to the pay scale of SBI employees fixed in 1992. The revised scale would be applicable to the existing pensioners as well. As a result the minimum pension would now be Rs 10,520 instead of Rs 4,250.

Nabard’s refinance for commercial banks has increased to Rs 4,289 crore in 2005-06 from previous year’s Rs 2,469 crore. The bank hopes that the demand for refinance from commercial banks would increase further.

PUBLIC FINANCE

The central government has released over 87 crore rupees to twenty-six small and medium towns across three states to take up various schemes under the urban infrastructure development scheme for small and medium towns (UIDSSMT). The amount which is the first installment of the central government’s share under the UIDSSMT has been released to Andhra Pradesh, Gujarat and Rajasthan. The amount is used for laying of distribution water pipe lines, water supply schemes, preserving water bodies, upgrading roads, improving drainage systems, construction and improvement of drains and shifting of electrical wires, channelising water courses and carrying waste water etc., in these three states.

As proposed by the Finance Minister in the budget proposals 2006-07, the government has constituted an expert committee to look into the potential of the gem and jewellery industry and the prevalent taxation practices in this sector in the country and abroad and to make suitable recommendations to enable India to be a hub for that sector. The committee has been mandated to undertake analysis of legislative provisions, rules and regulations governing taxation in the gem and jewellery industry in countries which have substantial turnover in the sector and also make recommendations for a taxation system based on best international practices in order to provide impetus to the growth of this sector.

FINANCIAL  MARKET

Capital Markets

Primary Market

The Reliance Petroleum’s IPO has been subscribed 7.5 times at the end of first day of its opening. However, the participation of the retail investors has not been impressive at 17 per cent of their entitlement, while the qualified institutional buyers (QIB) portion has been subscribed 11 times and the high net worth portion has been subscribed 8.32 times.

Plethico Pharmaceuticals Limited has tapped the market, on April 13, with its public offer of about 75.94 lakh equity shares in a price band of Rs 280 to Rs 300 per equity share; the issue closes on April 17.  

Lokesh Machines Limited, on April 10,has tapped the market with its public issue of 30 lakhs equity shares in a price band of Rs 130 to Rs 140 per equity share. The issue closes on April 13,2006.

Secondary Market

High international crude oil prices, aggressive FII selling, and the weak trend in other Asian stock exchanges have resulted into a highly volatile stock market over the week. On April 12, the BSE sensex has lost a whooping 306.82 points to settle at 11,355.73 points and the nifty has also registered a fall by 98.45 points to settle at 3380 points, triggered by massive FII selling to the extent of Rs 421.70 crore. Meanwhile, over the week, the sensex has declined by 3.04 per cent to settle at 11237.73 points, while the nifty has recorded a decline of 3.16 per cent to settle at 3345.5 points.

Among the sectoral indices of the BSE with exception of BSE Metal and BSE Oil and Gas, which have witnessed a rise of around 2.51 per cent and 0.29 per cent, respectively, all others have closed the week in negative territory, with BANKEX registering the highest fall of 4.75 per cent (8290.46 points), followed by BSE IT at 4.67 per cent (3896.32 points). Meanwhile, as compared with sensex, the BSE Small-Cap and BSE Mid-Cap have registered a decline of 1.97 per cent and 2.97 per cent, respectively.

The Sebi has revised the minimum shareholding norms, wherein companies having market capitalisation of Rs 1,000 crore and those having 20 million shares listed have been exempted from the minimum 25 per cent public shareholding requirement. Further, companies which have issued shares in initial public offers under Rule 19 (2) (b) of the Securities Contract (Regulations) Rules, 1957 and those who are tending to get listed under the rule have also been excluded from the shareholding requirement.

The tight market liquidity condition and the allure of fixed maturity plans offered by mutual funds have taken away the sheen of liquid funds, which have witnessed net outflows worth Rs 11652 crore in March. However, the total mutual fund asset under management has recorded a growth of 6.5 per cent to Rs 231862 crore during the month.

During the week, the FIIs have been huge sellers in the equity market to the extent of Rs 1583.6 crore with purchases worth Rs 8059.2 crore and sales of Rs 9642.7 crore. On the other hand, mutual funds have been net buyers in the equity market to the tune of Rs 391.75 crore with purchases worth Rs 2098.04 crore and sales aggregating to Rs 1706.29 crore.

Derivatives

During the week under review, the total turnover at the NSE’s F&O segment has declined to Rs 128,245 crore from Rs 148,850 crore, though the daily average turnover has increased in the holiday-shortened week to Rs 42748 crore from Rs 37212 crore in the previous week. As compared with the previous week, the turnover of the index futures have increased to Rs 40,654 crore from Rs 32,910 crore, while the turnover in stock futures have declined to Rs 74,018 crore from Rs 103,349 crore.

Government Securities Market

Primary Market

The RBI has conducted sale of a new 10-year government paper and has also re-issued 7.50 per cent 2034 for a notified amount of Rs 5,000 crore and Rs 3,000 crore, respectively. The cut-off yield for the new 10-year government paper and 7.50 per cent 2034 paper has been set at 7.59 per cent and 7.97 per cent, respectively.

During the week, the RBI has, under the regular auction, mobilised Rs 2107.62 crore through 91-day treasury bill at a cut-yield of 5.4889 per cent and Rs 1000 crore from 364-day treasury bill with a cut-off yield of 6.0611 per cent.

Secondary Market

Apprehensions over the impending decision over the interest rate in the RBI’s monetary policy, rising global crude oil prices and the rising US yields has kept the market cautious over the week. In the initial part of the week, the market participants have been cautious due to the auction of central government dated security worth Rs 8,000 crore. However, increased government spending towards the salary payments and the RBI intervention in the forex market resulted into robust cash surplus with the market. Consequently, the call rates have moved around the reverse repo rate for most part of the week to close at 5.50-5.60 per cent. Meanwhile, the auction outflows worth Rs 8,000 crore also have not been able to affect the market liquidity. The amount placed under the repo has averaged to Rs 300 crore as against Rs 562 crore, while the daily average reverse repo subscription has risen to Rs 52,300 crore from Rs 21,223 crore in the previous week. Over the week, the weighted average YTM of 8.07 per cent 2017 paper has risen to 7.5609 per cent as on April 13 from 7.5397 per cent as on April 7.

Bond Market

Oriental Bank of Commerce has raised Rs 500 crore, including the greenshoe option of Rs 250 crore, capital through private placement of bonds.

Foreign Exchange Market

The huge FII outflows during the week coupled with high international crude oil prices due to geopolitical risks surrounding Iran ’s nuclear ambition, which resulted into a rise in dollar demand by the oil companies; led the rupee to depreciate against dollar by about 1.1 per cent over the week to 45.19 from 44.69 in the previous week.  However, the rupee came off lows from around Rs 45.40 per dollar late in the week when RBI decided to sell dollar so as to stop the fall in the rupee movement. Meanwhile, in the forward premia market, the premia have eased despite the spot rupee’s weakness, the six-month forward premia stood at 1.28 per cent on April 13 from 1.47 per cent as on April 7.

Commodities Futures Derivatives

During the week, in the commodity futures markets, high volatility has been witnessed in the trading of pepper futures after rising in the initial part of the week on account of short-covering, which was triggered by news of active export buying in the spot market, the pepper futures have declined in the later part of the week. On the other hand, the cardamom futures have continued to fall mainly on account of weak fundamentals. Meanwhile, despite the continuous weakness in the Asian rubber futures market, the spot market movement of rubber has lifted the rubber futures trading. The spot rubber prices are expected to touch the high level of Rs 90 due to strong domestic and export demand. High prices and the accompanying bullish outlook is making growers hold on the stocks, thereby leading to the supply crunch. Also, the global markets have scaled new levels, which also influences the domestic market. Meanwhile, the uncertainty over the FMC’s dictum against launching new contracts in urad and tur as well as lesser additional margins for taking short positions in comparison to long positions has resulted in to more selling pressure on the urad and tur contract over the week.

INSURANCE

In a record breaking performance, the Life Insurance Corporation of India (LIC) in 2005-06 has generated three crore new policies against 2.39 crore policies in 2004-05. LIC has mobilised the first premium income (FPI) of Rs 18,085.48 crore as against Rs 12,000 crore in 2004-05. The company’s golden jubilee launch, Bima Gold, registered an unprecedented success story, crossing one crore policies in seven months since launch.

CREDIT RATING

Crisil has assigned a real estate developer rating of ‘DA3’ to Mani Square Private Limited (MSPL). The assigned rating indicates that the developer has a good track record in executing real estate projects as per specified quality levels and transferring a clear title within the stipulated time schedule.

Crisil has reaffirmed the ‘FAA’ and ‘P1+’ ratings assigned to Kirloskar Brother’s fixed deposit programme and Rs 200 million commercial paper programmes. The reaffirmation by the agency follows the approval by the company’s board of directors on April 4,2006 to de-merge its Anti-corrosive Products Group into a separate entity.

Crisil has reaffirmed the ‘P1+’ rating assigned to Balrampur Chini Mills Limited’s Rs 200 million short-term debt programmes. The rating reaffirmation continues to reflect the company’s high operating capabilities, the benefits it derives from its favourable locations and a strong financial risk profile.

Crisil has assigned ‘AAA/Stable’ rating to CitiCorp Maruti Finance’s Rs 500 million non-convertible debentures issue. The assigned rating is based on the company’s ultimate majority ownership by Citigroup Inc. and its strategic importance to the ultimate parent company.

Care has retained the credit rating of various bond issues of Maharashtra Patbandhare Vittiya Company Ltd. (MPVC), Maharashtra Water Conservation Corporation (MWCC) and Maharashtra Jeevan Pradhikaran (MJP) at ‘BB (SO)’. The above mentioned ratings are based on unconditional and irrevocable guarantee of government of Maharashtra , committed budgetary support from the government and a structured payment mechanism to facilitate timely debt servicing.

Care has re-affirmed the rating of outstanding bond issue of EDC Ltd. at ‘A (SO)’; this rating is based on credit enhancement in the form of unconditional and irrevocable guarantee of government of Goa and a structured payment mechanism to facilitate timely debt servicing. The rating also takes into account the favourable socio-economic structure of Goa state, small size of the state economy and its dependence on a few key sectors.

Care has reaffirmed the ‘AAA’ rating assigned to the various outstanding debt instruments of Small Industries Development Bank of India (SIDBI). The agency has also retained ‘AAA (FD)’ rating for the fixed deposit programme as well as the ‘PR1+’ rating assigned to the commercial paper program of SIDBI. The rating continues to reflect SIDBI’s position as the apex financial institution for the small-scale industries (SSI), the demonstrated support received from government, its high capital adequacy and comfortable liquidity.

Care has assigned ‘AA+’ rating to the proposed Rs.250 crore (Series II) Tier II subordinated bond issue of Vijaya Bank. The agency has also retained the ‘AA+’rating assigned to the outstanding Rs.250 crore (Series I) Tier II bond issue of the bank. The rating factors in the government’s ownership of the bank, long standing track record, comfortable capital adequacy, superior asset quality and strong solvency position.

Fitch Ratings has assigned an ‘AAA ( Ind )’ rating to the Rs 120 billion long-term debt programme of Rural Electrification Corporation Limited (REC) for the year 2006-07. The rating is based on REC’s close links with the government of India and the implicit support it enjoys from this association.

Fitch Ratings has affirmed the PTC India Limited's short-term debt rating on its Rs 200 million programme at 'F1+( Ind )'. The reaffirmation is based on PTC's healthy cash balances, strong business position, reasonable risk management systems and zero debt levels.

CORPORATE SECTOR

Indian Oil Corporation (IOC) and Haryana State Industrial Development Corporation have signed a Memoramdum of Understanding for developing a petrochemicals hub with an investment of Rs 25,000 crore in Panipat.

Trend Micro, an anti-virus and internet content security software and services firm, has entered into a global agreement with Ericsson to offer Trend Micro mobile security solution. Ericsson will incorporate Trend Micro mobile security solution into Ericsson mobile device as part of its mobile data solution portfolio, offered to enterprises and mobile operators.

Zensar Technologies has tied up with the world’s third largest information technology services provider solutions Fujitsu Services to cater Fujitsu’s customers in Europe, West Asia and Africa .

Chevron Corporation, the world’s fifth largest integrated energy company, has signed an agreement with Reliance Industries to pick up 5 per cent shares in Reliance Petrochemicals Limited for nearly Rs 1,320 crore ($ 300 million).

Royal Orchid Hotels has acquired 51 per cent shares in Maruti Comforts and Inn, Bangalore , at an investment of Rs 5.88 crore. The company has also executed a lease agreement with Jungle Lodges and Resorts for the management of ‘Hotel Krishna Raja Sagar’ situated near Mysore , Karnataka.

Pune based Thermax, a global solutions provider in energy and environment engineering, is setting up its second major plant in Vadodara in Gujarat Industrial Development Corporation premises.

According to PRIME database, a leading data base in the primary capital market, the Indian corporate sector have mobilised around Rs 23,684 crore through a mix of equity offerings in the financial year 2005-06, a growth of 10.56 per cent than the previous years Rs 21,422 crore.

Grasim Industries, the flagship company of Aditya Birla Group, will invest about Rs 560 crore to double the capacity of Aditya Cement from the current 1.5 million tonne per annum.

ABG Shipyard has secured an order of Rs 270 crore for construction of six anchor handling tug vessels each at a price of $ 9.99 million from Sea Tankers Management Co, a part of ship owning company John Fredriksen’s Group.

Power equipment major Bharat Heavy Electricals Limited has secured an order worth Rs 1,200 crore from GIPCL for setting up two units of 125-mega watt (mw) each. GIPCL has placed an order for setting up two units of 125 mw each (Units iii and iv) for its Surat Lignite Thermal Power Station expansion project.

Associated Cement Companies’s (ACC) total income has risen by 19.6 per cent to Rs 1,381 crore for the first quarter ended March 2006. ACC has changed its accounting year from April-March to January-December. ACC has reported a 42 per cent increase in net profit at Rs 235 crore during January-March 2006. ACC will invest Rs 400 crore to expand capacity by one million tonne a year at its factory in Lakheri, Rajasthan and set up a 25-mega watt coal based captive power plant.

MphasiS BFL has reported a 22 per cent rise in sales revenue at Rs 250.50 crore for the fourth quarter ended March 2006 and net profit has increased by 14 per cent at Rs 35.16 crore over the same period previous year. The MphasiS BFL Group’s consolidated revenues for 2005-06 have increased by 23 per cent to Rs 94.011 crore and net profit has stood at Rs 149.86 crore, a growth of 20 per cent over the same period previous year.

iGate Global Solutions has reported a whooping 111 per cent rise in net profit for the fourth quarter ended March 2006 to Rs 4.7 crore.

Sasken Communication Technologies Limited has posted a decline of 42 per cent in its net profit to Rs 6.29 crore for the fourth quarter of the financial year 2005-06.

EXTERNAL SECTOR

According to the World Trade Organisation's ‘World Trade Report 2005, a robust growth in merchandise exports in 2005 has resulted in India’s share in world exports to inch up to 0.9 per cent from 0.8 per cent in 2004. In services, India ’s performance has been more impressive with its share in world services exports increasing to 2.8 per cent in 2005 from 1.9 per cent in 2004. India ’s world ranking as a merchandise exporter has gone up one slot in 2005 to 29 from 30 in 2004. As a service exporter, India is now ranked 10th in the world compared to the 16th position occupied in 2004. Its ranking as an importer has jumped to 17 during the year from 24 in the previous year. As per the report, India ’s total exports during calendar year 2005 have stood at $89.8 billion which is19 per cent higher than exports worth $75.6 billion in 2004. Services exports from India have increased by a whopping 70 per cent in 2005 to $67.6 billion from $ 39.6 billion in 2004. Country’s total imports have increased to $131.6 billion in 2005 from $97.3 billion in 2004. The Reports also adds that the country will have to sustain its growth momentum in the next three years if it wants to reach the commerce ministry’s target of a 1.7 per cent share in world exports by 2008-09.

The top six positions in world merchandise exports has been maintained by Germany ($976 billion), the US ($904.3 billion), China ($762 billion), Japan ($595.8 billion), France ($459.2 billion) and Netherlands ($401.3 billion).

The report has warned that the prospects of trade did not seem too bright in 2006, as a further rise in energy costs during the year cannot be excluded. It noted that crude oil prices reached a new peak in the first quarter of 2006, already exceeding the annual average of 2005 by 10 per cent.

According to World Trade Organisation (WTO) forecast, global trade may grow at 7 per cent in 2006, up from last year’s revised 6 per cent expansion. In its annual review of trade trends, the WTO said that the outlook had been based on expected world economic growth of 3.5 per cent, slightly faster than the 3.3per cent rise in 2005. It said in the report that world trade was expected to benefit from this slightly stronger economic growth — in particular in the European Union.

However, it has cited a number of downside risks, including the possibility of US economic growth faltering due to higher real interest rates and energy costs, and fledgling EU recovery may not gather momentum.

The debate over special economic zones is set to intensify further with the finance ministry once again questioning several provision of the SEZ Act, 2005, including the provision to allow re-construction or transfer of an existing unit from the local area into the SEZ.

LABOUR

According to the statistics of the Asian Productivity Organisation, Japan , India has ranked seventh among 18 Asian countries in labour productivity indices. The labour productivity growth of workers in India was 5.38 per cent in 1998, 4.41 per cent in 2001 and 5.85 in 2004.

According to the statistics, the productivity indices of India shot up from 100 in 1988 to 124.5 in 1995. The only period in which the productivity showed a dip was the immediate post-reform period after 1991. The indices in 1992 declined to 113.6 from 116.3 in 1991. However, it soon went up to an impressive high of 118.2 in 1993. Interestingly, the cross-country comparison shows that even though the Indian worker has produced more than its Japanese counterpart (Japanese worker productivity went up from the base of 100 in 1988 to a far slower 113 in 1995.), China outstripped India in terms of both, the pace as well as quantum of productivity increase in 2004. China ’s labour productivity indices increased considerably to 141.04 in 1995 from 100 in 1988. The labour productivity growth in India during 1995-01 has all along been better than benchmark countries like Australia , Germany , the UK and the USA .

The ongoing issue of the reservation of jobs for SC, ST and OBCs in the private sector has been opposed by some of the corporate giants like Tata Sons Ltd and Bajaj Auto Ltd, stating that such a reservation would divide the country into segments. Instead, they have favoured bringing about a systematic change in the education set-up, strengthening small and medium enterprises and advocated a system that provides equal opportunities to all the underprivileged, not necessary based on caste.      

INFORMATION TECHNOLOGY

The domestic IT market will grow by 23 per cent to $4.3 billion in the current fiscal, according to the IT User 2005 Survey released by Nasscom. Few organisations in India have managed to reach nearly 100 per cent computer to employee ratio. While this might be true of large organisations, small and medium enterprises typically exhibit employee to PC ratio of 10 – 30 per cent. Around 35 per cent of the surveyed organisations have automated almost all their processes while 5 per cent use it for a few stand-alone applications. As many as 67 per cent of the organizations which responded to Nasscom IT User Survey have more than 90 per cent of their PCs connected to a LAN, but are looking at graduating to full scale LAN infrastructure within few years. According to the survey 85 per cent of organisations have been able to derive benefits out of IT implementation while 50 per cent claim to have documentary evidence to support the claim.

India’s second largest IT company Infosys Technologies has announced a 30 per cent growth in its net profit in 2005-06 to Rs 2,458 crore against Rs 1,892 crore in the previous fiscal. The company has declared a 1:1 bonus. Celebrating 25 years since its incorporation, the company declared a special silver jubilee dividend of 600 per cent (Rs 30 on every Rs 5 share). This will imply an outflow of Rs 827 crore. It also announced a final dividend of 170 per cent (Rs 8.50 per share), which will take the total dividend in the fiscal to 900 per cent (Rs 45 per share) amounting to an outgo of Rs 1,238 crore.

TELECOM

The Aditya Birla Group has agreed to buy Tata group’s entire 48.14 per cent stake in Idea Cellular for Rs 4,406 crore (at Rs 40.50 per share), marking an end to the spat between two of India’s largest corporate houses.

*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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