Current Economic Statistics and Review For the Week 
Ended July 14, 2007 (28^th Weekly Report of 2007)

Theme of the week:

Housing Price Index
A New Device for Tracking Residential Property Prices*

As a pioneering effort, the National Housing Bank (NHB) has brought out the housing price index termed as NHB’s RESIDEX. The objective of this price index is to capture the price movements of the residential houses

            In India , inflation is measured through the movements in wholesale price index (WPI) and alternatively through consumer price indices (CPI). The former is generally used as the measure of inflation because of its availability on a weekly basis compared to a less frequently available CPI (available on a monthly basis). However, while WPI covers only prices of commodities, various CPIs, have very limited coverage and that too in the form of ‘rent’ as a consumption item. Hence, these economy-wide price indices cannot adequately depict the price movements in house property or services, but the housing sector and its prices are becoming increasingly important in formulating various policies including those on extending finance to the housing sector and the construction sectors. Incidentally, the importance of the sector is reflected in the desire of the Reserve Bank of India to plan for a

 “ Housing Starts Index” as one of the indicators of economic development.

            With a view to building this data gap and assisting the planners, policy formulators and financiers, a step in the direction of compiling housing price index was initiated by the Government of India (GOI). This would understandably facilitate these institutions in understanding the price situation in housing sector vis-à-vis general inflationary situation in the economy.

In this direction, the National Housing Bank, at the behest of Ministry of Finance GOI, undertook the project to examine the feasibility of compiling a housing price index at the national level. For this purpose, they set up a Technical Advisory Group (TAG) with members from Government, HUDCO, RBI, LIC and housing finance institutions. The group deliberated various issues regarding the compilation of the price index and suggested a methodology. For this purpose, the TAG conducted a pilot study to compile such indices based on the suggested  methodology for 5 cities, viz., Bangalore , Bhopal , Delhi , Kolkata and Mumbai.

The RESIDEX so constructed covered the actual transaction prices with 2001 as the base year, collected through sample surveys, the schedule of which was canvassed with property dealers, Residents’ Welfare Associations, Development Authorities, Municipal Corporations and the Private Builders.

For the purpose of collecting appropriate and accurate data to facilitate compilation of RESIDEX, each selected city is divided into municipal administrative zones or property tax zones and further into city-specific housing colonies. Under each sample locations, information on 25-30 property transactions has been collected. The price indices are compiled following basic Lapeer’s Price Index formula. Alternatively, Hedonic method of estimation was also examined but not recommended at the present, as such a method would require more detailed information base.

 To represent the housing products appropriately in the index, houses are grouped into 3 categories based on the area of the flats/houses (area less than 45 square metre , area of  45 to 90 square metre and area above 90 square metre) and information was collected from each of these categories. In this pilot study, the construction of index followed a three-stage approach. In the first stage, the average price for a category in the zone was arrived at by taking simple average of all the prices pertaining to that category in the zone. In the second stage, the category wise price relatives were combined using the number of transactions reported under different categories during 2001 ( the base year) in a zone as weights, to get an index for the zone. In the third stage, the city index was calculated by aggregating the zone level indices using area covered in different zones/housing stock during 2001 as the weights.

The Results

NHB RESIDEX has been compiled for selected cities for 5 years, from 2001 to 2005, and these are given in the Table 1.

It may be seen from  Table 1 that Bangalore city witnessed the highest increase of 28.8 per cent per annum during the five-year period from 2001 to 2005, while Kolkata Metropolitan Area (KMA) region recorded the lowest average annual rise of 12.1 per cent among the 5 selected cities. Delhi witnessed the second largest rise of 19.1 per cent followed by GMCC at 18.6 per cent. Considering annual price changes, Delhi ( 34.0 per cent),

Mumbai-GMCC (24.5 per cent) and Bangalore (22.8 per cent) recorded large price changes during 2005 compared to earlier years except  Banglore city which recorded more than 30 per cent rise in 2002 and 2004.

            The movement in housing prices shown in different zones of the selected cities were also brought out by NHB in its report. Marked price differentials were noticed in some zones of Delhi , Mumbai, Kolkata compared with those in other zones of that city. It is interesting to note that the inflation in housing prices has been higher in up-coming areas rather than the traditional high cost areas.

The index is proposed to be compiled on half-yearly basis and to be extended to include 35 cities (and further to 63 cities which are currently covered under Jawaharlal Nehru National Urban Renewal Mission Project (JNNURMP)) to bring out eventually an all-India composite index.

It is also proposed to expand the scope of the index and to develop separate indices for commercial property and land, which would be combined to obtain the real estate price index. NHB also proposed to develop a comprehensive data base on housing covering details on property prices, land prices and the size of institutional finance. This would enable them to launch a genre of housing related indices such as rental index, land price index, affordability index, housing development index etc., according to NHB.

            NHB’ effort is a beginning in the area of housing price index. A long way still to go forward further in the compilation of the housing price index through improvement of methodology, coverage of more cities  to have representation of different regions, coverage of urban areas and non-residential properties to arrive at the real estate price index at the national level.

___________

* This note is prepared by  Dr. K S Ramachandra Rao

Reference:

NHB RESIDEX – Tracking the Price of Residential Properties in India , NHB, June 2007

Highlights of  Current Economic Scene

AGRICULTURE  

The central government has contracted 5.11 lakh tonnes of wheat, a part of a tender floated by the State Trading Corporation of India (STC) on June 26, against which it had received bids for 9.2 lakh tonnes from seven global firms.  It would import wheat at US $325.59 per tonne cost and freight, which is higher than the rate US $205.31 at which STC had contracted imports of 55 lakh tonnes during 2006-07. Out of the contracted quantity, Alfred C. Toepfer International of Germany would supply 2.56 lakh tonnes followed by Cargill Inc of US (1.30 lakh tonnes) and Riaz Trading of Russia (1.25 lakh tonnes). According to officials, Toepfer International would provide 1.28 lakh tonnes at $317 per tonne and the remaining quantity at $328 per tonne, while Cargill’s 1.30 lakh tonnes is for a price range of $324-$327.1 per tonne and Riaz Trading’s 1.25 lakh tonnes is at $329.95 per tonne. The entire 5.11 lakh tonnes wheat would be delivered at Mundra port between August and November 2007.

Following the central government’s decision to create a buffer stock of 20 lakh tonnes of sugar for a period of one year with effect from May 1, 2007, the Reserve Bank of India has authorised banks to create a fund of Rs 798 crore for the sugar industry, which would have to be used exclusively for payment of cane arrears to farmers. Under this arrangement, the central government would release a subsidy of Rs 378 crore out of the Sugar Development Fund for crediting to the account of individual sugar mills and banks have also been asked to waive margin requirement on the buffer stock inventory, which translates into additional credit entitlement for the sugar industry assessed at Rs 420 crore.

The central government is planning to build a strategic stock of wheat that would help curb inflationary pressures with the idea being to release wheat in the open market when inflation—or, prices —breaches a trigger point. The strategic stock would differ from the buffer stock on the principle that buffer stock reserves are used for the government’s public distribution schemes, while the strategic stock would be utilised only to control price escalations. The stock could be anywhere between 3 to 5 million tonnes. According to the food & agriculture ministry, the central government can leverage the strategic stock to become a dominant market player and maintain pressure on farmers to sell their produce to government agencies. As a first step, the government would start building a strategic stock of wheat, with a part of the present procurement plan (during the marketing period 2007-08) being used for the purpose.

The agriculture ministry has drawn out plans to increase the yield of pulses through intercropping of cereals, cotton, sugarcane and oilseeds, and targeting rice fallows of southern, eastern and central states. The government has decided to chalk out a programme for expanding the area under kharif pulses by 8.0 million hectares and that under rabi pulses by 1.2 million hectares during the Eleventh Plan. The programme would emphasis to increase the area under short-duration pulse crop in Maharashtra, Gujarat , Madhya Pradesh, Karnataka, Andhra Pradesh and Tamil Nadu. Other measures include enhancing the seed replacement rate need to 25-30 per cent, launching a national campaign to promote seed treatment with fungicides and Rhizobium culture in order to enhance the productivity by 10-15 per cent and promoting modern production technology based on agro-ecology of the region.

A KPMG report, ‘The Indian Sugar Industry Sector Roadmap 2017’ has suggested creating a ‘strategic stock’ for sugar by disposing of the existing monthly release mechanism that governs sugar sales to maintain prices in a sustainable band. According to the report, commissioned by the Indian Sugar Exim Corporation (ISEC), the strategic stock would involve the government or an independent body intervening as a market participant in order to maintain sugar prices within a defined band. The strategic stock intervention would get initiated through sugar purchase when the sugar price would fall below the band, thus increasing the prices and vice-a-versa. The strategic stock could be funded through a special purpose vehicle, with the sustainable price band being defined by the government and the day-to-day operations of procurement and release of stocks being vested with an independent body.

The Marine Products Export Development Authority (MPEDA) has launched a Rs 20-crore project to culture disease-free mother shrimps in the Andaman and Nicobar islands to supply them to hatcheries to produce quality shrimp seeds for the aquaculture industry. The project is in collaboration with the Hawaii-based Aquatic Farm Ltd, and Shrimp Biotech Business Unit, Bangkok . Shrimps, cultured in farms, form more than 50 per cent of the $1.4 billion earned from marine products exports.

The State Trading Corporation of India (STC) Ltd. has set up a tea processing plant at Gudalur to help small and marginal growers in the Nilgiris region. STC has signed up around 300 growers for supply of green leaves ensuring better prices, which are based on the last auction prices at Coonoor. The tea plant would supply quality produce for STC’s tea export operations, which earn revenue around Rs 30 crore. STC mainly exports tea to countries like Pakistan and Afghanistan .

The Centre for Sustainable Agriculture (CSA) has asked the Andhra Pradesh Government not to allow field trials in GM (genetically modified) crops in the State as the GM field trials would have adverse impact on the farmers. The letter came in the wake of GEAC (Genetic Engineering Approval Committee) approving GM field trials in bendi and maize in the State.  Andhra Pradesh is among many States that are yet to form State Biotechnology Coordination Committee (SBCC) to over see the GM crops related activity. The States are supposed to set up the committee under the Environment Protection Act.

Imports of spices in the country during financial year 2006-07 has shown a substantial increase of about 5,000 tonnes in volume and about Rs 65 crore in value over the previous financial year, mainly on account of the competitive prices for most of the items in the world market. The total imports have stood at 95,405 tonnes valued at Rs 603.87 crore as against 90,412 tonnes worth Rs 539.24 crore in 2005-06. There has been a significant rise in the imports of cardamom (large) and small, turmeric, poppy seed, cassia, mustard seed, cumin black/white and other spices. Nutmeg and mace, spice oils and oleoresins and chilli/paprika have also showed an increase. Imports of pepper, however, have fallen to 15,750 tonnes valued at Rs 136.42 crore in 2006-07 from 16,870 tonnes worth Rs 103.58 crore in 2005-06. Increase in unit value, which surged to Rs 86.62 a kg from Rs 61.40 a kg in 2005-06 and tight supply position in the world market seem to have led to the drop in the commodity.

Industry

The growth in Index of Industrial Production (IIP) has registered a marginal slowdown to 11.1 per cent in May 2007 from 11.7 per cent in the corresponding month last year. While the mining and electricity sectors have fared better in the month, it is the manufacturing sector that has seen a deceleration with growth rate at 11.9 per cent from 13.3 per cent during the corresponding month in 2006-07. The mining sector has recorded a growth of 3.7 per cent against 2.9 per cent in May 2006, while the power sector has performed much better by nearly doubling its growth rate to 9.4 per cent from 5 per cent. According to the CSO data, the cumulative growth rate during April-May 2007-08 has been 11.7 per cent as against 10.8 per cent during the same period last year. During April-May, the mining, manufacturing and electricity sectors have reported growth rates of 3 per cent (3.2 per cent in April-May 2006), 12.7 per cent (12.2 per cent) and 9 per cent (5.5 per cent), respectively. As per the use-based classification of the industry, the growth rate of consumer durables has dipped to 2.6 per cent in May 2007 as against 17.5 per cent in the corresponding month last year and the growth rates of intermediate goods and consumer goods too have decelerated to 9.1 per cent and 9.8 per cent from 12.5 per cent and 10.5 per cent, respectively, in May 2006

Infrastructure

Buoyed by high growth rate in petroleum refinery products output and higher production of finished carbon steel, the index for infrastructure industries has registered a growth of 8.7 per cent in May 2007 compared with 7.2 per cent in May a year ago. While for the first two months of the current year the growth in the cumulative index has accelerated by 8.1 per cent against 7.2 per cent a year ago.

Inflation

The annual point-to-point inflation rate based on wholesale price index (WPI) rose by 4.27 percent for the week ended June 30,2007 as compared to 4.13 per cent in the last week or at a higher rate of 5.21 per cent during the corresponding week last year.

During the week under review, the WPI rose to 212.5 from 212. in the previous weeks’ level (Base: 1993-94=100). The index of ‘primary articles’ group, (weight 22.02 per cent), rose by 0.4 percent to 221.6 from its previous week’s level of 220.7, mainly due to higher prices of ‘food article like masur, fruits and vegetables, condiments and spices, jowar and marie fish.Prices of oilseeds like cotton seed, castor seed,linseed and groundnut also movedup.

Marginal increase is witnessed in the price  index of ‘fuel, power, light and lubricants’ group (weight 14.23 per cent) due to higher prices of bitumen compensated to some extend by the fall in prices of furnace oil.

The index of ‘manufactured products’ group rose by 0.3 per cent to 184.9 from 184.4 during the week under review. The higher prices of food products like khandasari, rice bran oil and groundnut oil ,and items like footwear, ceramic tiles, electrical equipments etc. pushed up the prices of manufactured products.

The latest final index of WPI for the week ended May 5, 2007 has been revised upwards; as a result both, the absolute index and the implied inflation rate stood at 212.0 and 5.74 per cent as against their provisional levels of 211.4 and 5.44 per cent, respectively.

Banking

Credit card frauds are a growing concern world over and the menace is now in India too. There are increasing reports of transactions that have taken place in far-off places such as Japan , Britain , Sri Lanka and Thailand appearing on the Indian consumer’s statements at the home country. The situation is so alarming that losses have totaled $55 billion a year have been reported by financial institutions, merchants and consumers, says the findings of a recent VISA survey. Such frauds are happening at a time when e-shopping is gaining momentum keeping in mind the disposable income of the young in the growing economic environment.

ICICI Bank which has raised $5 billion last month in India ’s biggest share sale, is now borrowing a record of $1.5 billion to fund growth demand for credit. ICICI is seeking the biggest loan by an Indian bank to meet credit expansion of as much as 30 per cent in the fastest-growing major economy after China . The amount is almost twice the syndicated borrowings of Indian banks this year. Credit is expected to grow at 20-30 per cent. This year the bank has raised $4 billion from bond sales.

The Tata group will pick up to 4.6 per cent stake in Development Credit Bank (DCB) through its newly-formed subsidiary Tata Capital. The board of DCB has approved raising up to Rs 310 crore by issuing preferential share to five investors, including Tata Capital, at Rs 105 per share. This would form 16.6 per cent of the post-issue capital of the bank.

Public Finance

Indirect tax collection has also been keeping pace with direct tax collection during the current fiscal year. The robust 11.1 per cent growth in industrial output during May 2007 has been reflected in substantial increase in customs and excise duty collection during the first quarter of the fiscal year 2007-08. The revenue collected through customs and excise duties during April-June 2007-08 has stood at Rs 48,732 crore - a rise of 12.7 per cent compared with Rs 43,237 crore during corresponding period of 2006-07. The receipts from customs duty have seen a growth of 19.8 per cent to Rs 23,571 crore while excise duty collection has increased by 6.8 per cent to Rs 25,161 crore during the quarter. In the month of June, customs duty collection has augmented by 15.9 per cent at Rs 8,183 crore against Rs 7,059 crore during the corresponding month of the previous year. The rise can be attributed to increased imports of oil and other goods by the industry. The recent phenomenon of rupee appreciation has also made import attractive, leading to increased revenue. However, excise duty collection has witnessed a lower growth of 7.6 per cent to stand at Rs 9,313 crore. The consolidated revenue collection from the service tax during April-May 2007-08 has stood at Rs 5,878 crore, with a 41.2 per cent growth over Rs 4,163 crore collected during the corresponding period of 2006-07. According to the estimates of the government, service tax collection will cross Rs 50,000 crore during the current fiscal year. Whereas customs duty receipts are expected to increase by 20 per cent to Rs 77,066 crore during 2007-08 while excise revenue was expected to increase by 6.2 per cent at Rs 1,19,000 crore.

Financial Markets

Capital Markets

Primary Market

Simplex Projects Limited has tapped the market between July 10 and 13 by issuing equity shares aggregating Rs. 30 Lakhs with face value Rs.10 per share, in a price band of Rs 170-185.

Alpa Laboratories Limited has tapped the market between July 12 and 17 by issuing equity shares aggregating Rs. 90 Lakhs with face value Rs.10 per share, in a price band of Rs 62-68.

Secondary Market

Sensex, Nifty settle at new peaks

The market continued its winning streak on strong buying momentum in index pivotals in the week ended 13 July 2007. Strong markets across the globe, fresh buying at higher levels, healthy inflow from foreign funds and domestic mutual funds and anticipation of robust set of Q1 June 2007 results triggered the rally on the bourses. Shares from the metal, capital goods, and real estate sectors advanced, while those from the IT sector slipped.

The BSE 30-share Sensex jumped 308.60 points in the week ended Friday, 13 July 2007, to settle at a record closing high of 15,272.72. Tractor and utility vehicle maker Mahindra & Mahindra replaced Hero Honda in the BSE Sensex from 9 July 2007.

The S&P Nifty added 119.70 points to record closing high of 4,504.55, in the week.

Trading for the week began on an upbeat note. The Sensex rose 81.61 points, or 0.55%, to 15,045.73, an all-time closing high, tracking firm Asian markets, on Monday 9 July 2007.

The market drifted lower on Tuesday, 10 July 2007, as caution prevailed ahead of Infosys’ earnings. The Sensex lost 36 points.

The market extended the fall on Wednesday 11 July 2007, tracking weak global markets and after IT bellwether Infosys Technologies slashed its EPS and revenue guidance for FY 2008 in rupee terms while announcing Q1 June 2007 results.

The market bounced back on Thursday, 12 July 2007. Firm global markets and strong industrial production data for May 2007 released by the government during trading hours, aided the surge. The Sensex jumped 181.42 to 15,092.04.

On Friday, 13 July 2007, the Sensex surged 180.68 points to 15,272.72, an all-time closing high, tracking strong global markets. It also struck an all-time high of 15,330.73 in intra-day trade.

Derivatives                                  

The Nifty July 2007 futures settled at 4,488.50, a discount of 16.05 points compared to spot closing of 4,504.55.

Government Securities Market

Primary Market

RBI has announced the sale (re-issue) of ""7.27% Government Stock 2013" and "7.95% Government Stock 2032" for Rs.6000 crores and Rs.3000 crores on July 20, 2007. RBI has announced the sale (re-issue) of "6.65% Government Stock 2009" for Rs.5000 crores under the Market Stabilisation Scheme (MSS) on July 18, 2007.

The cut-off yield in 91-day T-Bill auction moved lower to 5.1183% as against 6.1908% during the previous week. The cut-off yield in 182-day T-Bill auction moved lower to 6.0535% as against the previous cut-off yield of 7.6622%.

Secondary Market

During the week, the weighted average call rates during the period ranged between 0.40 per cent and 1.88 per cent, while weighted average repo rates ranged between 0.24 per cent and 0.31 per cent and the weighted average CBLO rates ranged between 0.04 per cent and 0.09 per cent. The average volumes of Call, Repo, and CBLO segments were Rs.121,04 crores, Rs.119,37 crores and Rs.265,29  crores respectively. The daily average outstanding amount in the LAF (reverse repo) operation conducted during the period was Rs. 2997 crore. The 1-10 year YTM spreads increased by 52 bps to 129 bps.

Bond Market

Shriram Transport Finance Co has tapped the market to mobilise Rs 10 crore by issuing bonds, offering coupon rate of 11.10 per cent for 3 years.

TML Financial Services has tapped the market to mobilise Rs 100 crore by issuing bonds, offering coupon rate of 9.8 per cent for 3 years.

Infrastructure Leasing & Financial Services Ltd has tapped the market to mobilise Rs Rs 60 Crore for 2 years & Rs 20 Crore for 3 years by issuing bonds, offering coupon rate of 9.50% & 9.60% respectively.

Citicorp Finance India has tapped the market to mobilise Rs 10 crore by issuing bonds, offering coupon rate of 9.55 per cent for 3 years.

Foreign Exchange Market

The rupee closed at Rs.40.47/USD on July 13, 2007 as compared with Rs. 40.46/USD as on July 06, 2007. The Rupee moved between Rs.40.38 and Rs.40.47, with a standard deviation of 4 paise during the week. Similarly during the fortnight (July 02, 2007 - July 13, 2007), the Rupee moved between Rs.40.38 and Rs.40.66, with a standard deviation of 9 paise. The Rupee moved between Rs.40.38 and Rs.41.01 during the last 1 month (June 18, 2007 -July 13, 2007), with a standard deviation of 20 paise.

 The six-month forward premia closed at 1.91% (annualized) on July 13, 2007 vis-à-vis 2.48% on July 06, 2007.

Commodities Futures derivatives

The National Commodity and Derivatives Exchange (NCDEX) is shifting focus to politically less sensitive commodities such as metals in a bid to steer clear of constant government intervention in farm commodities futures, Managing Director P.H. Ravikumar said on Tuesday. Last year, fears that traders might be distorting price discovery and leading to a speculative rise in prices had led the government to de-list urad and tur futures. Listing of fresh wheat and rice contracts were also banned to curb a speculative increase in prices. The delisting of these contracts had hit NCDEX as its focus was on farm commodities. Ravikumar said NCDEX has started getting “good business” in gold and silver futures after shifting gear, and the exchange hopes to replicate its success story in base metals and energy futures. The exchange has already launched trading in steel, copper, aluminium, zinc and nickel among base metals, as also in furnace oil and Brent crude.

Vietnam , the largest pepper exporter in the world, has joined hands with Indonesia for a strategic alliance in order to curb high volatility in the global market. Together, both countries account for 45 per cent of the total global supply. In a meeting held in Jakarta on Monday, representatives of Vietnamese and Indonesian Pepper Associations had decided to set up a joint working committee to improve marketing, quality and supply of pepper. Although Brazil had shown a keen interest in forming a cartel with Indonesia and Vietnam earlier, the country had participated in the meeting along with China . The trilateral meeting scheduled earlier was aborted as a major chunk of the members from the Brazilian Pepper Exporters Association reportedly were not in favour of forming the cartel. Indonesian Pepper Exporters Association (AELI) Chairman Hassan Widaja said the committee would compile statistics on global pepper supply and demand to avoid excess supply that could lead to a price collapse. The committee will be established formally within five months based on a memorandum of understanding signed in April this year. According to the MoU, the statistics and information would include crop sizes and prices, quality standards and trade contracts. The committee would also monitor legal and regulatory changes in the importing countries. According to an AELI spokesperson, the alliance would ensure that the two countries obtain adequate information on global conditions of pepper mart so that they could avoid signing contracts that benefit only the buyers. The committee would hold periodic meetings to discuss market conditions and to standardise export contracts. Exporters from both countries currently apply different contracts, including those issued by the International General Produce Association (IGPA) and American Spice Trade Association (ASTA). In the future, exporters from Vietnam and Indonesia will adopt one standard form contract to avoid confusion. Sources said that China and Brazil would join the consortium soon as volatility in global pepper mart upsets the export sector of these nations. Interestingly, the consortium was formed in the background of high volatility in the Indian futures market in recent months. The Indian market had seen a wide range of movement on the contract market and is in a bearish mode for no reason. The total global supply for the current year is expected to touch 270,000 tonnes, while demand is estimated to reach 376,000 tonnes with countries such as Russia , China , India , Canada and West Asia leading the front. Vietnam accounts for 33 per cent (90,000 tonnes) of global supply in 2007, followed by Brazil with 35,000 tonnes, Indonesia with 35,000 tonnes and China with 30,000 tonnes. Meanwhile, the Forward Markets Commission (FMC) will hold a meeting of prominent hedgers in futures market on July 13 in Mumbai. The meeting is crucial as the lowering of position limit has affected hedging in black pepper very badly.

Wage talks between workers and company managements are likely to determine the fate of base metals prices on the London Metal Exchange (LME). Meanwhile, wage contracts between unions and as many as 10 world’s leading metal producers are expiring over the next one month and are currently under several stages of negotiation. Successful talks may avert any possibility of strikes in mining and smelting units, resulting into smooth supply of metals and normal price movement. But, prices may move abnormally in case talks fail and plants go on strike. Workers at Chile ’s Escondida copper mine have already slowed down their work as the wage contract is expiring in July and the company management has shown little interest in the new contract offer. Grupo Mexico ’s La Caridad copper mine has already been under strike since March this year and talks are scheduled on July 15. But, mine workers at the company’s Cananea copper mine in Mexico have accepted the management’s offer to end the six-week strike. But, the final rounds of talks are scheduled on July 16. Supplies of base metals, especially copper, are receiving fresh threat from mine workers in Chile , Peru and Mexico as they demand higher wages, arguing that increasing prices have boosted profits for mining companies, including Codelco, the world’s biggest copper producer.

After clocking in 20 per cent excess rainfall till the first week of July, the monsoon may remain subdued in most areas in the next few days, allowing sowing operations to gather further momentum. The planting of most kharif crops, barring paddy, is already ahead of last year’s corresponding positions. Going by the current trends, the acreage under cotton and oilseed crops may expand this year, reflecting growers’ anticipation of good returns in view of high ruling prices. The same is true also of pulses like tur (arhar) and moong  which have good local demand but limited scope for imports. Water availability in the country’s major reservoirs is exceptionally comfortable with the total storage being 65 per cent above the long-period average (normal) for this stage. This  augers well for irrigation, hydel power production and other uses. Water inflows are good in most dams thanks to copious rainfall in their catchment areas. The Tamil Nadu government has, consequently, decided to begin releasing water from the Mettur dam from July 25 to facilitate the “samba” crop cultivation in the Cauvery delta. The cumulative monsoon rainfall between June 1 and July 4 has been 20 per cent above normal. Only 5 of the total 36 meteorological subdivisions have recorded deficient rainfall. However, the active monsoon belt is now shifting to the Himalayan foothills and the north-eastern region. As a result, the India Meteorological Department (IMD) has projected only subdued rainfall activity in the next 3 to 4 days over most parts of the country, except coastal Orissa, the north-eastern states and the Himalayan region which could witness isolated heavy falls. But fairly widespread rainfall is predicted after July 15 in the Gangetic plains, the north-east and the peninsula. Indeed, thanks to ample rainfall, the overall hydrological scenario is fairly reassuring. Total water stored in the 78 major reservoirs regularly monitored by the Central Water Commission was 38.225 billion cubic metres (BCM) on July 5. This is 16 per cent more than last year’s storage and a whopping 65 per cent above the normal level for this date. While 61 of these dams are more than 80 per cent full, only two have indicated no live storage. These are Sriramsagar in Andhra Pradesh and Kangsabati in West Bengal . Going by the river basins, the reservoirs in the Sabarmati basin, pounded with some of the heaviest showers, have already accumulated 0.268 BCM water, which is a whopping 325 per cent above the normal storage of 0.063 BCM at this time of the season (see chart). Water storage in the Krishna basin, too, is 131 per cent above normal while that in the Indus basin is 110 per cent above normal. Only 3 of the country’s 12 broad river basins have reported below normal water storage. Of these, dams on the rivers of Kutch have significantly below normal storage, with the overall deficiency being nearly 60 per cent. The others are marginal cases, with the deficiency being 11 per cent in the Tapi basin and just 0.3 per cent in the dams over the Mahanadi and the adjoining east flowing rivers. The latest crop sowing trends, reported by the states to Krishi Bhawan on July 6, indicate that paddy sowing is lagging behind last year’s corresponding level by some 1.7 lakh hectares. But, the pace is said to have picked up after the recent widespread wet spell. Coarse cereals, on the other hand, have already been seeded on over 60.77 lakh hectares, against 58.4 lakh hectares in the same period last season. Bajra and jowar have been the major gainers in terms of area while the sowing of maize has been relatively low so far. Among the commercial crops, cotton and oilseeds, notably groundnut and soyabean, seem to be the farmers’ favourites. Cotton has already been planted on nearly 60 lakh hectares, against 37 lakh hectares last year. Of this, over 23 lakh hectares have been planted with insect-protected transgenic Bt cotton seeds, reflecting the growing popularity of transgenic cotton that helps cut costs by reducing the need for pesticide sprays. The area under coverage with oilseed crops is higher this year than the corresponding positions in previous two years. While groundnut acreage exceeds last year’s corresponding level by 20 per cent, that of soyabean is up by 60 per cent despite belated onset of the sowing season due to the late arrival of the monsoon in Madhya Pradesh. Sugarcane acreage, sown till date, is reckoned at 45 lakh hectares, about a lakh hectares less than last year, as many growers feel that the sugar factories, weighed down by mounting inventories, might be reluctant to crush all the available cane in the next season.

Upset over fall in its turnover, commodity exchange NCDEX said statements by some of the key policymakers have affected trading sentiments in futures markets. Ravikumar , MD , NCDEX said that statements made by some of the key policymakers, on the relevance and effectiveness of futures markets in commodity, had affected the market sentiments. He was replying to a query on why there has been a severe impact on the exchange’s turnover during the last one year. Turnover at NCDEX, the leading agri-commodity exchange, has declined to Rs 33,501 crore during June 1-15, 2007 from Rs 36,796 crore during previous fortnight, according to the data released by the Forward Markets Commission. The turnover was as high as Rs 63,000 crore during the first fortnight of September last year. Ravikumar said that statements having negative impact on the futures markets were being made from June last year. The participants have a choice to take part in other market segments like stock markets where there were no such issues. He further said that the market has been built by exchanges and regulator over the last three years and to regain the market confidence it would require strenuous efforts. Ravikumar also attributed the frequent changes in margin and open interest position for the decline in its turnover.

Corporate Sector

In a bid to de-risk its capital-intensive exploration and production (E&P) business, Reliance Industries is planning to join hands with global oil majors like BP, Chevron, ExxonMobil and Shell for ultra deep sea drilling in India . Almost 83 percent of Reliance's exploration acreage is in challenging deepwaters where risks associated are several times higher, with 15 percent in shallow water and the remaining 2 percent, onshore. The company has already invested Rs 9,000 crore in E&P and has committed another Rs 9,000 crore next year, but the global success ratio in E&P business is only 16-17 percent.

Tata Group has drawn up its final blueprint for foray into the hypermarket and supermarket segments in partnership with the Australia-based Woolworths Group, under its wholly owned subsidiary Infiniti Retail. At present, Tata’s in a joint venture with Woolworths are operating six Croma stores in the country, ranging 15,000 to 22,000 square feet each involving an investment of Rs 400 crore.

Ranbaxy Laboratories has decided to close its manufacturing facility located at Jejuri, Pune with effect from July 13, 2007 as the plant has become unviable. The formulation drugs manufacturing plant is engaged in the production of steroidal and non-steroidal creams, ointments and lotions and non-beta-lactum tablets.

JSW Steel, has started its 3 million tonne expansion project at its plant in Vijaynagar. The expansion project would entail an investment of Rs 7,000 crore and once completed this facility will be able to produce 10 million tonne, making it the largest single-location steel facility in the country.

As per a report released by Nasscom, for the second consecutive year, Genpact topped the third-party ITeS-BPO rankings for fiscal 2006-07. WNS Global Services also maintained its second spot in succession, while Wipro BPO slipped to sixth place from number three position in 2005-06. Top 5 in FY 06-07 are Genpact, WNS Global, Transworks Info, IBM-Daksh, TCS BPO respectively.

Due to high operating costs in India Infosys is looking at low cost locations overseas primarily for its BPO operations. The company is intended to boost operations in the Philippines , Mexico , Malaysia and Czech Republic .

The Rs 938-crore Tata Projects (TPL) is planning to float a new engineering and construction company in joint venture with the state-owned engineering conglomerate Engineers India Ltd (EIL). The JV company will have equity participation from EIL and TPL in the ratio of 50:50 and will undertake engineering, procurement and construction (EPC) jobs in India and abroad mainly in the areas of oil and gas, fertiliser, power and infrastructure. The Tata-EIL JV company will have its headquarter in New Delhi and its initial authorised capital will be Rs 15 crore of which Rs 10 crore would be paid up.

The petroleum ministry has cleared the pricing formula proposed by RIL for gas sale from its D-6 block in the K-G basin by incorporating certain changes that, in effect, bring down the base price of the gas to $4 - 4.10 per million BTU from $4.33 per mbtu. The petroleum ministry has also factored in the rupee appreciation trend over the last six to eight months. As against Reliance’s assumption of an exchange rate of Rs 45, the ministry has reduced this to about Rs 40 - 41, which will reduce the base price of gas to $4 - 4.10 per mbtu.

Ratan Tata, chairman of Tata Group and Tata Motors, India 's largest automobile company has indicated that the company may hive off some of its well performing divisions into separate subsidiaries in future to leverage the synergies of an independent subsidiary.

External sector

The foreign exchange earnings of the country from overseas visitors have increased by 18 per cent during first six months of the year 2007 amounting to US $ 3.58 billion. This increase can be attributed to the economic expansion of the country resulting in more business travellers and overseas tourists arrivals, which have gone up by 12 per cent to 2.3 million during January to June 2007. In the month of June 2007, the earnings from overseas visitors have grown by 23 per cent to US $ 518.4 million as the number of visitors increased by 11.4 per cent.

Telecom

The country’s largest mobile operator, Bharti Airtel has awarded a $900 million contract to telecom equipment provider Nokia Siemens for expansion of its mobile, fixed and intelligent network platforms. The Finnish-German joint venture, has committed $100 million investment in India to grow its business operations.

Telecom service provider Reliance Communications has entered into a tie-up with London-based TeleGlobal and has chalked a roadmap for its foray into the country. The tie-up will enable the company to sell its ‘Reliance IndiaCall’, an international calling card across 20,000 outlets in UK . The company would be targeting ethnic Asians in the continent, who comprise over 10 per cent of the population in the UK .

Idea Cellular, the Aditya Birla group company, has awarded a Rs 205-50 crore ($50-55 million) contract to IBM to deploy and maintain an interactive voice response (IVR) system for the GSM service provider. This is the second outsourcing agreement between the two companies – the earlier one being a $600 – 800 million deal in March this year.

*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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