Current Economic Statistics and Review For the
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Theme
of the week: Central Government Budget 2007-08:
Plan
Programmes The year 2007-08 is the first year of the Eleventh Five Year Plan (2007-08 to 2011-12) and hence the priorities set in the budget for the expenditure programmes will serve as a precursor to the next five-year plan programmes. The budget speech claims that the plan will aim at a faster and more inclusive growth. Towards this end, the budget for 2007-08 hopes to place the budgetary support at Rs 154,939 crore, an increase of 22.5 per cent over the revised estimates of Rs 126,510 crore for 2006-07 (RE). The budget also hopes to have a 40.2 per cent rise in internal and extra-budgetary resources (IEBR) of public enterprises from Rs 117,719 crore to Rs.165,053 crore during the same period (Statement A). Therefore, the total central plan outlay will increase by 31.0 per cent from Rs 244,229 crore to Rs 319,992 crore.
The claim made by the budget that a number of additional programmes envisaged for the hitherto neglected agricultural sector would shift the balance of plan programmes in its favour, does not seem to have fructified. Of the total central plan outlay of Rs 319,992 crore, during 2007-08, only Rs 8,558 crore or 2.7 per cent appears under ‘agriculture and allied activities’ against 3.0 per cent as per the revised estimates for 2006-07. The largest increases under the central plan outlays have occurred in the case of energy, industry and minerals, communications, and social services (Statement B). It is true that much the larger part of the public expenditure on agriculture takes place at the states level but at the same time, unless the centre releases larger plan outlays, the states are unable to expand their outlays at the margin.
Deficit
Reductions
The central (and state) budgets in recent years have been
steadfastly pursuing the objectives of deficit reductions as embodied in
the Fiscal Responsibility and
Budget Management (FRBM) Act, 2003 and the rules framed there under.
As shown in Statements C and D, the central government has achieved
steady reductions in revenue and fiscal deficits.
A noteworthy aspect of the budget for 2007-08 has been the
achievement of deficit reductions as between the budget estimates of
2006-07 and their revised estimates as a result of substantial buoyancy in
tax receipts as explained in a subsequent paragraph.
And the budget seeks to make a sharp advance in this respect.
The declines of 0.5 percentage points in each of the revenue and
fiscal deficits to 1.5 per cent and 3.2 per cent, respectively, during
2007-08 would be a noteworthy achievement.
More noteworthy would be the achievement in slashing the percentage
of total liabilities of the centre to GDP1
from 63.4 per cent in 2005-06 to 58.4 per cent during 2007-08 (BE) (Appendix
Table 2).
It should be noted in parenthesis that if the external sector components of the total liabilities are measured at current exchange rates rather than at book values as done in the budget papers, the total liabilities to GDP ratio will rise by at least 2 to 3 percentage points (Government of India’s Economic Survey 2006-07, p.34). As per the FRBM targets, revenue deficit as percentage of GDP would be reduced to “nil” and fiscal deficit to 3.0 per cent by 2008-09 (Statement C). The current trends suggest that it would be easily achieved. There are two methods by which this achievement is made possible: one, by a steady increase tax resource mobilization which is reflected in an increase in tax to GDP ratio; and another, by relative reductions in expenditure. The objective of this note is to present, with the support of a series of tables, the details of these methods by which the central government is achieving the FRBM goals. Trends
in Tax Revenues As shown in Statement D, the pace of decline in total expenditure of the central government has been faster than the pace of increase in the centre’s revenue receipts or that of the tax revenue receipts net to the centre (all as percentages of GDP).
No doubt, the centre has expanded its tax base, which is reflected in a rise in gross tax to GDP ratio by about 3.50 percentage points from 8.20 per cent in 2001-02 to 11.67 per cent of GDP. As against this, the centre’s total expenditure, which had peaked at 17 per cent of GDP in 2003-04, has fallen to 14.5 per cent of GDP during 2007-08 (BE), that is a less of about 2.5 percentage points. But, partly as a result of the slower growth in other revenue receipts and partly as a result of higher transfers to the states through the Finance Commission recommendations, the centre’s revenue receipts as percentage of GDP have risen by 1.0-1.5 percentage points during the period under discussion (Appendix Tables 1 and 7).
On the
capital receipts side, following the FRBM regulations, borrowings of the
central government as percentage of GDP have been drastically reduced from
6.2 per cent in 2001-02 to 3.2 per cent during 2007-08 (BE).
In fact, the budget for 2007-08 visualises an absolute reduction in
borrowings from Rs 152,328 crore in 2006-07 (RE) to Rs 150,948 crore
(Appendix
Table 1). A developing
country like On the expenditure side, there is a peculiar picture which is that the bulk of the rise in capital expenditure during 2007-08 (BE) has been due to non-plan capital expenditure and not plan capital expenditure; the former arises from a special development viz., the acquisition of SBI shares from the RBI (for which there is a corresponding receipt item in the form of other capital receipts). Non-plan capital expenditure is budgeted to rise only by Rs 2,600 crore, whereas the capital expenditure under defence is expected to rise by Rs 7,464 crore. The bulk of the capital expenditure on non-plan account thus represents the transfer of SBI shares from the RBI to the government. In the rise in plan expenditure of Rs 32,370 crore, as much as Rs 29,770 or 92 per cent has been under revenue plan expenditure during 2007-08, the first year of the eleventh five-year plan. This reflects the newer objective of the plan which focus on social infrastructures, the expenditures on which are generally of a revenue nature. Composition
of Tax Revenues An aspect of the fiscal performance in recent years has been the steady increase in the share of direct taxes in the tax structure of the central government as distinguished from indirect taxes. The proportion of direct taxes has risen from 37 per cent during 2001-02 to 48.8 per cent during 2007-08 (BE), whereas the share of indirect taxes has fallen from 63.0 per cent to 51.2 per cent during the same period. On the face of it, this is certainly a healthy development, but it has been achieved essentially as a result of the sharp reductions in the rates of indirect taxes, customs and excise duties in particular, as part of the reform agenda. Also, increases in direct tax revenues have taken place because of the sizeable increases in the incomes of the middle and richer segments of society; there has been, in other words, a decisive shift in income distribution in favour of richer segments of society. Also, much the larger part of the increases in higher incomes has occurred amongst the executive classes who cannot evade Taxes; therefore, the average collection has turned out to be better than in the past (Appendix Table 2). Expenditure
Pattern On the face of it, the steady decline in the share of non-development expenditure in aggregate expenditure from a peak of about 75-76 per cent in 2000-01 to about 70 per cent and the corresponding rise in the share of plan expenditure from 25 per cent to 30 per cent, appear as healthy developments. But, a detailed analysis suggests that these developments are not as healthy as it is made out. First, the relative shares of non-plan and plan expenditures are out of somewhat reduced tempo of growth in aggregate expenditure. The aggregate expenditure as percentage of GDP has fallen from the peak of 17 per cent of GDP in 2002-03 to 14.5 per cent in 2007-08 (BE). Within such a reduced tempo of aggregate expenditure, the plan expenditure to GDP ratio has stayed put at around 4.4 per cent throughout the past decade (Appendix Table 3). Non-plan expenditure as percentage of GDP, no doubt, has fallen from the peak of 12.6 per cent during 2003-04 to 10.1 per cent during 2007-08 (BE). But, by far the largest decline has occurred under ‘interest payments’ because of a steep and general fall in the interest rate levels in the economy. The share of ‘defence’ expenditure has gone up and that of ‘subsidies’ has fallen rather fractionally from a peak of 9.4 per cent of GDP to 8.0 per cent. Interestingly, the share of administrative expenditure, christened in the budget as ‘general services’ which consists of police, pensions and general administration, has stayed stuck at around 7 per cent of GDP. Simultaneously, the non-plan, expenditures earmarked for ‘social’ and ‘economic services’, puny as they are at around 1.4 to 2.5 per cent of GDP, have experienced declines during the past few years. No doubt, under the plan expenditure, the direct expenditures on ‘economic’ and ‘social services’ have shown significant increases as proportions of the total, that is, from 9 per cent to 12 per cent and from 5 per cent to 11 per cent, during the past few years (Appendix Table 3). But, as direct social expenditures incurred by the centre constitute only about 20 per cent of the aggregate social expenditures of the government sector, state governments have to expand their expenditure base on ‘social’ services. Unfortunately, this is not possible as the centre has simultaneously reduced its share of devolution to the states. It is found that the central assistance to state plans as percentage of aggregate expenditure has slipped from 11.0 per cent in 2001-02 to 6.9 per cent in 2007-08 (BE). After the transfer of small saving accumulations to a separate corpus called the “National Small Savings Fund” (NSSF) from which the states are fully allotted small saving allocations, central assistance on capital account has been meagre, while the bulk of the central assistance has been on revenue account. The revenue account assistance has shown a rise from Rs 19,466 crore in 2001-02 to Rs 45,627 crore in 2007-08 (BE) (Appendix Table 3).
Expenditure on Social Development and Poverty Alleviation Programmes One of the important claims made by the central government in recent years has been that it has conferred special focus on social sector expenditures and expenditures on rural development programmes including rural employment programmes. While there have been increases under all heads in absolute terms, in terms of percentages to GDP almost all social expenditure heads, except education, have experienced a fall in the 2007-08 budget. Expenditure on education as percentage of GDP has risen from 0.4 per cent in 2001-02 to 0.6 per cent in 2006-07 and further to 0.7 per cent in 2007-08 (BE). Under all other heads, this proportion has either stagnated or fallen. For health, for instance, the proportion has remained stuck at 0.3 per cent now for about a decade. For rural development, the proportion had risen from 0.6 per cent in 2001-02 to 0.9 per cent in 2006-07, but it is estimated to decline to 0.7 per cent in 2007-08 despite the rhetorics of implementing the national rural guarantee scheme. Overall, expenditures on all social and poverty alleviation programmes together have remained stuck at around 2.6 per cent of GDP during the past few years (Appendix Table 4).
Reduced
Outlays for Agriculture Appendix Table 5 is intended to provide a synoptic view of the Government of India’s expenditure allocations amongst different sectors as represented by allocations for different ministries. The Finance Minister’s budget Speech had claimed that the budget had “a number of proposals to improve the economic viability of farming and ensure that farmers earn a minimum net income”. Amongst the programmes emphasized in the budget speech are: (i) accelerated irrigated benefit programmes; (ii) rain-fed area development programme; (iii) restoration of water bodies; and (iv) ground water recharge. Curiously vast importance assigned to irrigation and other agricultural programmes, the expenditure increases proposed for their ministries are just meagre. The expenditure proposed for the Ministry of Agriculture at Rs 9,362 crore for 2007-08 shows a rise of 10.5 per cent over that of Rs 8,472 crore during 2006-07 (RE). Likewise, the budgeted expenditure for the Ministry of Water Resources at Rs 872 crore shows a rise of only 7.4 per cent over that of Rs 812 crore during 2006-07 (RE). It is not as though that there have been any substantial increases in the recent past. The agrarian crisis and the agricultural development crisis are to a great extent attributable to the narrow emphasis given in public expenditure programmes to agriculture. Thus, the annual average growth in expenditure for the Agriculture Ministry between 2000-01 and 2007-08 has been only 2.5 per cent as against the annual average increase of 21.5 per cent during the preceding five-year period 1995-96 to 2000-01. Similarly, the corresponding increases for the Water Resources Ministry have been 5.2 per cent and 9.3 per cent (Appendix Table 5). This is truly disappointing because the budget proposals pertain to the first year of the Eleventh Five Year Plan which is poised to shift the development strategy in favour of agriculture. Moderation
in the Growth of Staff Strength
Appendix
Table 6 presents ministry-wise staff strength and remunerations of
staff over the past 5 to 6 years. There
is no gainsaying that the growth in the staff strength of central
ministries has been contained, though some of the ministries/departments
like the Department of Atomic Energy and the Ministry of Home Affairs
(paramilitary forces in particular) have had to increase their staff
strength. The total staff
strength of all ministries/departments together were at 33.19 lakh as at
the end of March 2003 and it would remain at 33.30 lakh at the end of
March 2008. During the same
period of five years, however, there has occurred a 42 per cent rise in
the remunerations of staff from Rs 32,615 crore to Rs 46,379 crore 1 GDP at current market prices is estimated to have grown by 14.5 per cent during 2007-08 as against 15.0 per cent during 2006-07 (CSO’s advance estimates).
Highlights of Current Economic Scene AGRICULTURE State
Trading Corporation of India (STC) has floated a tender for importing 10
lakh tonnes of wheat for the public distribution system (PDS) to make up
for the shortage resulting from lower-than-expected procurement by the
central government agencies. As per the official records, the government
agencies have procured only 78.6 lakh tonnes of wheat in the on going rabi
marketing season 2007-08, against the 87.9 lakh tonnes during the
corresponding period of 2006-07. Out of total 10 lakh tonnes of wheat to
be imported, 5.4 lakh tonnes are required to be delivered during May-June
2007 and the remaining quantity of 4.6 lakh tonnes in July 2007.
During 2006-07, wheat imports by the STC have stood at 55 lakh
tonnes, as the procurement has been dismal at 92.3 lakh tonnes. The
central government has decided to keep the import price below US $ 230-US
$ 235 per tonne C&F (cost and freight). The tender has received only 2
responses – one from Mumbai and another from The
minimum export price (MEP) of onions has been revised downwards by US $ 30
per tonne to US $ 225 with effect from May 01, 2007 to provide support to
domestic prices. This has been the second consecutive downward revision of
onion MEP as it was lowered by US $ 80 per tonne to US $ 255 in April
2007. Onion exports from the country have jumped by about 44 per cent in
2006-07 to 11.3 lakh tonnes against 7.8 lakh tonnes in 2005-06. The
2006-07 exports were valued at Rs 1,070 crore.
In the current financial year 2007-08, so far, about 70,000 tonnes
have been exported on a good demand from As
per the industry sources, sugar output in The
central government had decided to create a 2 million tonnes sugar buffer
till April 2008 following surplus availability and falling prices. The
creation of the buffer would cost the government Rs. 378 crore and an
additional Rs. 420 crore credit would be provided to the mills by the
banks. The
inferior quality of Indian natural rubber has resulted in drastic decline
in its exports, reflecting 25 per cent drop during the last financial year
2006-07. According to
exporters, Industry SME The
government has proposed to increase the financial assistance to existing
clusters of micro, small and medium enterprises (MSMEs) up to 80 per cent
of their financial requirements. This has been provided for under the
eleventh plan. According to the ministry of small-scale industries, this
assistance will be provided towards aspects such as technology upgradation
and meeting the financial gaps. The government will also be proposing to
build a pool of consultants under its national manufacturing
competitiveness programme. These consultants would be deployed with a
cluster of 8-10 companies for a period of 12-18 months. The cost of these
consultants will be borne by the Government. The
rupee appreciation by six to seven per cent in the last eight weeks
against the dollar is expected to bring down the price of imported radial
tyres by Rs 600 to 800. The reduction in the price by about four to five
per cent has come soon after the reduction in the peak import duty
announced in the current budget. According to all India tyre dealers
federation (AITDF), the rupee appreciation and peak-duty reduction have
helped in not only bringing down the price but would also bring radial
tyres usage within the reach of owners with a smaller fleet of five to six
trucks. Now, a pair of truck/bus tyres will cost Rs 20,700 in comparison
to its price of Rs 21,500 in February 2007. The freight truck operators
had been reeling under volatility in the diesel price and frequent
increase in the price of tyres in the last two years. The two key inputs,
which together account for more than 80 per cent of the operating cost,
had adversely affected the freight operators business. However, with
stability in the diesel price in the last one year, strengthening of the
rupee and import duty reduction, the trade is expected to improve its
business in the long run. Infrastructure Power Restarting
of Dabhol power plant on natural gas has hit another roadblock with the
construction of gas pipeline being further delayed. The Gujarat government
has asked GAIL India ltd to suspend work on the 12-km section of the
pipeline, which passes through the The
government has, in its eleventh plan, planned to set up nine 4,000-MW each
ultra mega power projects. But the prospect of even a single project
getting operational during the current plan period now appears bleak.
Contrary to the government's contention that some units of these projects
would get operational by the end of the plan, the power ministry has
stated that it would not be possible to complete any of the proposed ultra
mega projects during the plan period and these would spill over to the
twelfth plan (2012-2017). The government had issued letters of intent (LOI)
to the promoters of the first two projects — Tata power company for the
proposed Mundra ultra mega project in Gujarat and the Lanco-Globeleq
combine for Sasan project in Madhya Pradesh — on December 28 last year.
However, while the award of the Mundra project to Tata has been delayed by
four months, the fate of the Sasan project is still hanging fire in the
wake of controversies in the project's bidding process. These delays have
raised question marks over the government’s capacity addition target of
68,000 MW this plan period. Cement Admitting
that the dual excise duty structure proposed in budget 2007-08 has failed
to elicit the desired response from cement players, the finance minister
Mr P. Chidambaram has announced an ad valorem duty of 12 per cent for
cement selling above Rs 190 for a 50-kg bag, instead of the increased
specific duty of Rs 600 per tonne proposed in the budget. However, cement
selling at a price below Rs 190 would continue to enjoy the reduced duty
of Rs 350 per tonne announced as part of the budget proposals. The
minister is expecting an effective reduction of Rs 7 per bag on the excise
duty liability. Inflation The
annual point-to-point inflation rate based on wholesale price index (WPI)
stood at 5.77 percent for the week ended April 21,2007 as compared to 6.09
per cent for the previous week or at a lower rate of 3.85 per cent during
the corresponding week last year. During
the week under review, the WPI remained unchanged at 210.9
(Base: 1993-94=100). The index of ‘primary articles’ group,
(weight 22.02 per cent), rose by 0.1 percent to 219.2 from its previous
week’s level of 219.1 mainly due to rise in prices of chicken, masur and
gram. The index of ‘fuel, power, light and lubricants’ group (weight
14.23 per cent) rose marginally from 320.4 to 320.5. The price index of
‘manufactured products’ group decreased by 0.1 pr cent to 183.5 from
183.6 for the previous week due to rise in food products like coconut and
gingelly oil etc. The
latest final index of WPI for the week ended February 24,2007 has been
revised upward from 208.8 to 209.0. Annual WPI inflation gone up to 6.20
per cent as compared to 6.10 per cent (provisional). Banking The
department of economic affairs announced that beginning May 1, all foreign
investment coming in as non-convertible, optionally convertible or
partially convertible preference shares would be considered debt and come
under the overall ambit of external commercial borrowing (ECB) guidelines
and caps. This is the first time that the ECB cap, which hitherto applied
only to debt, will cover a class of shares. The ECB cap for 2007-08 is $22
billion. In April-December 2006-07, Indian companies raised over $9
billion in ECBs, against $4.3 billion (excluding Indian Millennium Deposit
redemptions) in the same period of 05-06.
In addition, any foreign investment coming in as fully convertible
preference shares would be treated as part of share capital. It would also
be included for calculating foreign equity for sectoral caps.
The finance ministry has also said that any foreign preference
shares as on and up to April 30, 2007, would be outside the sectoral cap
till their maturity. Issue of preference shares of any type would continue
to conform to existing statutory requirements. The latest policy statement
supersedes a Press Note of July 31, 1997, which prescribed the guidelines
for Indian companies mobilising foreign investment through preference
share issues. Financial
Markets Capital
Markets Primary
Market Insecticides
(India) Limited has tapped
the market between May 07 and 11 by issuing 32.1 lakh shares of Rs 10 each
in a price band of Rs 97-115 per share. Binani
Cement Limited has tapped the
market between May 07 and 10 by issuing 205 lakh shares of Rs 10 each in a
price band of Rs 75-85 per share. MIC
Electronics Limited has
tapped the market between April 30 and 08 by issuing 51 lakh shares of Rs
10 each in a price band of Rs 129-150 per share. Secondary
Market The
market edged higher in a truncated trading week. Select side-counters were
in demand, either due to their strong Q4 results or on expectations of
good earnings. The
30-share BSE Sensex rose 25.69 points to 13934.27 in the week ended 4 May.
The S&P CNX Nifty advanced 33.85 points to 4117.35 in the week. Small-cap
and mid-cap stocks extended their recent gains. BSE Mid-Cap Index rose
129.63 points to 5863.16 in the week. BSE Small-Cap Index rose 90.09
points to 7031.57 in the week. The
two key indices Sensex and S&P CNX Nifty witnessed a divergent trend
on Monday (30 April). While the Sensex shed 36.21 points to end on
13,872.37, Nifty rose 4.40 points and settled at 4,087.90. However, the
highlight of the trading session was a tremendous intra-day rebound by
both. The Sensex reverted from the lower level after having plunged as
many as 214.99 points in mid-morning trade. The
market remained closed on Tuesday (1 May) and Wednesday (2 May) on account
of public holidays. Renewed
buying in Reliance Industries (RIL) took Sensex up 206 points on Thursday
(3 May). Rallying US markets and firm Asian markets aided rally on
domestic bourses. A
fall in RIL, caused by an unfavorable interim order of the Bombay High
Court, pulled the barometer BSE Sensex below the psychologically important
14,000 mark on Friday (4 May). IT pivotals also edged lower, hit by the
rupee’s surge. The domestic bourses bucked a firm trend in Asian stocks.
Sensex lost 143.94 points to finish at 13,934.27. FIIs
pressed sales to the tune of Rs 304.60 crore on Monday (30 April) but they
resumed buying on Thursday (3 May) with an inflow of Rs 56.20 crore.
Mutual funds were net buyers to the tune of Rs 71.30 crore on Monday and
Rs 298 crore on Thursday. Finance
Minister P Chidambaram on Thursday announced changes in the Finance Bill
2007-08, following a discussion in Parliament. Chidambaram said the
government will charge an ad valorem duty of 12% on cement priced above Rs
190 per 50 kg bag as against the budget proposal of Rs 600 per tonne.
After this 12% duty, the effective reduction in tax burden on cement sold
above Rs 190 per bag would be up to Rs 7, Chidambaram said during the
debate on Finance Bill 2007-08 in the Lok Sabha. The
import duty on jems & jewellery has been completely abolished and duty
on cut diamonds abolished. The export duty on low-grade iron ore export
was slashed to Rs 50 per tonne from Rs 300 per tonne. The
Finance Minister also recast the tax on Employee Stock Options (ESOPs).
Fringe Benefit Tax will now be applicable on date of vesting. Guidelines
will be issued in due course on how to arrive at the value of ESOPs. The
Lok Sabha on Thursday passed the Union Budget 2007-08 by a voice vote Derivatives
The
Nifty May 2007 futures settled at 4,120, a slight premium of 2.65 points
as compared to the spot closing of 4,117.35.
Government
Securities Market Primary
Market Under
the weekly T-Bill auctions, the RBI mopped up Rs.2000.00 crores (MSS worth
Rs.1500.00 crores) and Rs.1626.33 crores (MSS worth Rs.1000.00 crores)
through 91-day T-Bill and 182-day T-Bill. The cut-off yields for the
91-day and 182-day T-Bill were 7.6851% and 7.7271% respectively. RBI
has announced the sale (re-issue) of "7.55% Government Stock
2010" for Rs.2000 crores under the Market Stabilisation Scheme (MSS)
on May 9, 2007. RBI
has announced the sale (re-issue) of "7.49 per cent Government Stock
2017" and "8.33 per cent Government Stock 2036" for Rs.6000
crores and Rs.4000 crores respectively on May 11, 2007. RBI
has revised the ceiling for the outstanding under the Market Stabilisation
Scheme (MSS) for the year 2007-08 to Rs.1, 10,000 crores with a threshold
of Rs.95,000 crore. RBI
announced that the rate of interest on the Floating Rate Bonds, 2016 (FRB,
2016) applicable for the year (May 7, 2007 to May 6, 2008) shall be 7.83%
per annum. Secondary
Market During
the week, the weighted average call rates during the period ranged between
7.90% and 9.12%, while weighted average repo rates ranged between 7.13%
and 7.85% and the weighted average CBLO rates ranged between 6.69% and
7.65%. The average volumes of Call, Repo and CBLO segments were
Rs.11479.18 crores, Rs.6510.78 crores and Rs.13248.39 crores respectively.
The daily average outstanding amounts in the LAF (reverse repo) and LAF (repo)
operations conducted during the period were Rs.393.33 crores and
Rs.8508.33 crores respectively. The weighted average YTM of G.S 2017 8.07%
bond was 8.1499% on May 04, 2007 as compared to 8.0328% on April 27, 2007.
The 1-10 year YTM spreads increased by 7 bps to 37 bps. Foreign
Exchange Market The
rupee-dollar exchange rate appreciated from Rs 41.29 on April 30 to Rs
41.18 on May 03 and again rose to 40.90 on May 04. The
six-month forward premia closed at 5.61% (annualized) on May 04, 2007 vis-à-vis
6.8% on April 27, 2007. Commodities
Futures derivatives The
chief executive officer and managing director of the National Commodity
and Derivatives Exchange (Ncdex), P H Ravikumar said, blaming futures
trading in commodities for rising prices was misplaced as the non-exchange
traded goods had contributed more to inflation than those traded in the
exchanges. Exchange has made a detailed presentation on futures trading
and its impact on prices to the expert panel headed by Abhijit Sen. In a
study undertaken by the exchange, it was observed that the prices of wheat
and pulses were rising due to supply constraints. Earlier this year, the
government had banned futures trading in urad, tur, wheat, and rice to
keep a check on the prices. Inflation contribution of commodities traded
on the exchange was 0.3% while commodities not traded contributed 0.835 to
the WPI. Ravikumar said the weightage of commodities not traded on the
exchange in Wholesale Price Index was also higher at 2.63% than those
traded at 2.06%. The
expert panel, set up by the Centre to study the impact of futures trade on
prices of farm commodities, is scheduled to submit its recommendations by
the May-end. Ravikumar’s statement assumes significance as the standing
committee on food, consumer affairs, and public distribution on Friday
reiterated that futures trading in all essential commodities be banned.
The committee observed that the objective of futures forward trading is to
help farmers in price discovery and price risk management, but small
farmers were not able to reap the benefits. Ravikumar
said Farmers have largely benefited from futures trading, while he quoted
case studies prepared by Haryana Marketing Federation, National Institute
of Agricultural Marketing, Jaipur, and Ravikumar
said wheat farmers have got better prices on account of futures trading,
at least Rs 20 higher than the minimum support price (MSP). He said
futures trading can even help the government in its procurement operation
by timely import decision can be made by monitoring wheat futures closely,
MSP can be fixed based on the harvest month futures price and Food
Corporation of Rebutting
criticism that futures markets are causing escalation of prices in certain
commodities, Mr Anjani Sinha, Director of Multi Commodity Exchange, has
said the markets would have no impact on prices. Giving an example, he
said that prices of sugar, which were ruling at Rs 2,200-Rs 2,300 a
quintal last year, had come down significantly this year. On the other
hand, prices of wheat (trading of which was banned by the Government early
this year) and some pulses had gone up. While this was the case with the
agricultural commodities that were in the trading list, those, which were
not covered in the list, like onions and moong dal too showed a sharp
increase. Prices of commodities are influenced by demand and supply With
the organised retailing witnessing a big boom, major players such as
Reliance, Pantaloon and ITC have begun futures in potatoes, Mr Sinha said.
This enabled the retail players assured quantities, quality products and
shield against price hikes. He
said the exchange was going to have tie-ups with all leading global
exchanges. They have already entered into agreements with London Metal
Exchange and Chicago Climate Exchange He
said biggest challenges for the growth of commodity markets in the country
were lack of knowledge and rural infrastructure. The Multi Commodity
Exchange (MCX) is likely to start futures trading in barley and coriander
soon. National
Spot Exchange Ltd (NSEL), which is hopeful of commencing electronic trade
of agricultural commodities by the year-end, will enroll traders in two
months. NSEL is an arm of Multi Commodity Exchange. They have initiated a
nationwide campaign to educate farmers and traders on the NSEL activities
and its advantages. Farmers would get better price realisation if they
join the trading. The exchange would first focus on In
a significant move, the Multi-Commodity Exchange (MCX) has joined hands
with Federation of Farmers’ Association (FFA) to dispel myths among the
farmers about futures trading resulting in increase in foodgrain prices.
In fact, this form of trading would help in averting crisis arising out of
crop shortages and crop failures. Addressing an awareness programme on
futures trading for farmers here on Monday, Anjani Sinha, CEO, National
Spot Exchange Ltd said that futures exchanges provided price signals for
the future, and when monitored closely, it can avert major crisis during
shortages. Through spot exchanges or electronic virtual markets, exchange
wants to empower farmers with real-time information and on that basis;
better price can be achieved while selling. The MCX-FFA initiative aims at
achieving widespread participation of actual producers and bringing
farmers under one platform and helps them with national trends of the
production and arrives at a best price for the crop. This in turn, can be
hedged to secure a long-term interest and capital. Further, MCX is looking
at adding more products in the pipeline. Currently it offers futures
trading in 68 commodities National Spot Exchange have sought a state level
licence from the Andhra Pradesh government. According to Rule 53A, it
specifies Rs 10 crore as investment requirement for setting up private
market yard which is linked to investment in physical infrastructure. Corporate
Sector With
aviation turbine fuel prices likely to go up by around 4 per cent for the
month of May 2007, airline companies are planning to increase the fuel
surcharge. The fuel surcharge, introduced in May 2006, currently stands at
Rs 750. It was last revised in September when ATF prices stood at Rs
43,989 per kilolitre. Since then fuel prices have seen a continuous
increase over the previous quarter, with the result that the fuel
surcharge is likely to go up again by Rs 100. Sakthi
Auto Component Ltd, the Rs 250-crore subsidiary of Sakthi Sugars, has
acquired Intermet Europe, an auto component company owned by Intermet
International Inc of the Ashok
Leyland is in the process of buying out a Detroit-based testing services
firm. The commercial vehicle major has signed a share purchase agreement
to acquire 100 percent of the paid-up capital of Defiance Testing and
Engineering Services, Inc (DTE). The purchase price of the transaction is
$17 million, which is approximately Rs 70 crore. DTE, which is currently
owned by GenTek Inc, Maruti
sold 50,352 units in April, up 17 percent from 43,127 units a year
earlier. GM India reported a 22.2 percent growth in April and sales 4,474
units against 3,662 units in April 2006. Among two-wheelers, motorcycle
market leader Hero Honda reported a modest 4.9 per cent growth while
Bajaj’s motorcycle sales in April fell by 13 per cent as it sold
1,64,304 units against 1,88,518 units in April 2006. For
the first time, big retailers like Reliance Retail, Pantaloon, PepsiCo and
ITC have taken position on the Multi-Commodity Exchange (MCX) for futures
trading of non-perishable products. They have teamed up with MCX for
potato futures trading. Approximately, these companies source about 1,000
tonne of potato on weekly basis for distribution across the country
through their outlets. Companies have started working on contract farming
for commodities. NSE is poised to offer better price realisation for
farmers through improving marketing efficiency, reduce the cost of
intermediaries and offer an alternative spot trading platform. The
Bombay High Court has restrained Mukesh Ambani-led Reliance Industries Ltd
(RIL) from entering into any contract for the use or supply of gas from
the Finance
minister P Chidambaram has moderated his Budget proposal to levy 3 per
cent import duty, additional custom duty as well as countervailing duty on
import of aircraft, including helicopter, by removing flying schools and
smaller regional operators from its purview. The provisions would,
however, continue to apply to non-scheduled operators (all other operators
other than regional), corporate jets and for private use. Providing
partial relief to iron ore exporters, finance minister proposed to reduce
the export duty on iron ore, fines with Fe content of 62 percent and
below, to Rs 50 per tonne. On iron ore fines having Fe content above 62
percent and on iron ore lumps, the duty will, however, remain at Rs 300
per tonne as proposed in the Budget 2007. Tata
Steel has firmed up plans to refinance the bridge loans it had availed to
fund its $12.9 billion acquisition of Anglo-Dutch steel maker Corus Group
plc. The Indian steel maker had received Rs 28,960 crore bridge facility
from Credit Suisse, ABN Amro and Deutsche bank. Mumbai
based Wockhardt has announced their fifth buyout in Information
Technology The
Indian information technology and related services (IT/ITeS) industry is
predicted to become a $100 billion plus industry by 2011, growing at a
compound annual rate of (CAGR) of 18 per cent, as per the IDC India
report. Moreover, the domestic IT/ITeS, with revenues growing at 19.7 per
cent CAGR, is projected to touch Rs 1,68,370 crore in 2011 This also means
that domestic IT/ITeS revenues will grow faster than the export revenues
over the next 5 years. The Indian IT/ITeS industry clocked Rs 1,98,477
crore of revenue in 2006, up by an impressive 31 per cent over 2005. On
the domestic front, IT/ITeS spend has been estimated at Rs 68,411 crore in
2006, a gain of 26 per cent over 2005. The
personal computer market is set to grow by 22 per cent in this financial
year and may record sales of 6.5 million units. According to the
Manufacturers’ Association for Information and Technology (MAIT), strong
macroeconomic conditions and buoyant buying sentiments in the market led
by demand from various industry verticals will spur the growth. MAIT also
announced that the total PC sales between October and December 2006,
including desktop computers and notebooks, were 1.39 million units,
registering a growth of 28 per cent over the same period last financial
year. Telecom A
fall in hardware and component prices and fierce competition has resulted
in handset prices dropping 10-15 per cent across brands over the last 12
months. Prices of components such as LCDs, batteries, VGA camera, memory
chips and add-on features like radio and music players have declined owing
to technological developments and competition. Overall hardware costs have
fallen 10 – 20 per cent and in some cases and are expected to fall
further. Entry level handsets, which have seen prices drop from an average
of Rs 2,500 in the year 2006 to Rs 1,500 in 2007 and are expected to drop
as market majors Nokia, Motorola and Sony Ericsson leverage their scale
and product range to compete on price and differentiation. Analysts say
that with the mobile subscribers base in India projected to surpass 300
million by 2010 from 166 million now, handset prices will decline further
as manufacturers try to reach to rural and semi-urban markets. Reliance
Communications is planning to invest Rs 10,000 crore in capital
expenditure for the financial year 2007-08 across all segments of its
business.
*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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