Food policy making gets complicated as global food and oil markets have got interlinked says PM

Annual supplement to Foreign Trade policy has a slew of measures to pep up exports of industries affected by the rupee appreciation. This includes major spurs to cut down transaction costs, procedural simplification, extension of the popular duty neutralisation scheme until May 2009 and a one-year extension in income-tax benefit to 100 per cent export units. Global food supply shortages are causing increase in prices of food commodities. The food and oil markets have got interlinked due to land being used for bio fuels in several countries.

- Chillibreeze Business Research Team

Government Policy & Infrastructure
Economy
Sector Specific – Telecom
Banking & Finance
Power
Steel
Cement
International
Agriculture

Government Policy & Infrastructure

State levies likely to flow to exporters from central coffers

The 13th finance commission may provide a solution to the long-pending issue of reimbursement of state-level levies paid on inputs used for exports. The Centre is looking at the option of providing reimbursement of state taxes from its kitty and then deducting it from the central allocation to states.

The finance commission, headed by Vijay Kelkar, has asked the commerce department to submit by May a draft proposal, based on which it could take a decision.

Although the ministry of commerce and industry has circulated a Cabinet note on two options that could be applied for reimbursing state taxes, a decision may not be taken early as the issue will be looked into by the finance commission, sources said.

The Cabinet note provides the option of either the Centre reimbursing the state taxes on inputs used by exporters or the state government providing refunds.

The empowered committee of state finance ministers, which was looking into the refund mechanism, has also not been able to come out with a suitable suggestion. However, with the government now looking at the finance commission for issuing a directive on the issue, it many not be necessary for the commerce department to push the Cabinet note.

While the Centre doesn’t want to reimburse the state taxes from its own funds as it could encourage states to impose more taxes, the states have been reluctant to shell out the amount from their coffers.

April 14, 2008
Source: Economic Times

Export oriented units get extension of I-T benefit

A slew of measures to pep up export of traditional industries hit by the rupee appreciation, major spurs to cut down transaction costs, procedural simplification, extension of the popular duty neutralisation DEPB (Duty Entitlement Pass Book) scheme till May 2009 and also a one-year extension beyond March 2009 in income-tax benefit to 100 per cent export units are outlined in the annual supplement to Foreign Trade policy.

Releasing the final year supplement to the FTA (2004-09) here on Friday, the Union Commerce and Industry Minister, Mr Kamal Nath, announced an export target of $200 billion for the current fiscal, against $155 billion export performance achieved in 2007-08.

He said the achievement fell short by $5 billion due to the effect of an appreciating rupee by more than 12 per cent against the dollar in 2007. If trade in services were added, India’s commercial engagement with the world would be $525 billion, he said.

In order to achieve the export target, Mr Nath announced tax refunds and interest subsidies to a spate of export segments that are labour-intensive in nature such as marine products, leather, textiles and handicrafts and 5 per cent additional duty credit for export of toys and sports goods.

For agricultural products, additional duty credit of 2.5 per cent for export under Vishesk Krishi and Gram Udyog Yojana (VKGUY) is provided for export of certain flowers, vegetables and fruits.

In the Focus Market scheme, 10 more countries including Mongolia, Bosnia-Herzegovina, Albania, Croatia, Honduras, Sudan, Ghana, and Colombia were included.

While the customs duty payable under Export Promotion Capital Goods (EPCG) Scheme has been cut from 5 per cent to 3 per cent, average export obligation under the scheme for premier trading houses would be calculated based on the average of the last 5 years’ export instead of the extant 3 years. Alongside, reduced average export obligation under EPCG for sectors that have seen decline in exports in the previous year is also announced.

Mr Nath also unveiled a plan for value-added manufactured products and said the list of products would be notified shortly. The government would also set up an export promotion council for the telecom sector to augment its exports and would also set up hubs for auto parts, drugs, and petroleum and information technology.

EOUs would be allowed to pay excise duty on a monthly basis instead of consignment basis. To ensure that terminal excise duty and central sales tax refund is made on time, interest at 6 per cent a year is to be paid to the exporter where refund is not made within one month of the due date.

April 12, 2008
Source: The Hindu Businessline

Economy

Inflation could be lot worse than 7.41%

Inflation could be a lot worse than the 7.41% figure for the week ended March 29 that already has the government in a tizzy. If you look at a disaggregated picture of the different indices that together add up to form the wholesale price index, you will be struck by the large number of items whose prices just have not changed. But, that, of course, is only in the index. In the real world, prices do change. But these do not find reflection in the index because of faulty reporting.

The combined weight of these static items — including household items such as utensils, batteries, biscuits, processed tea, detergent and toothpaste — in the WPI is more than 10%. When the government does finally get hold of information on price changes in these sectors, the index would move up sharply.

Besides, a lot of other items such as fertilisers and pesticides which have over 10% weight in the WPI index, have had their index changed only once, that too at the beginning of this year. The index for items such as electrical appliances that carry around 2% weight in the WPI has remained static since August 2007.

In case of drugs and medicines and plastic parts, the last revision was in February. In fact, this infrequent revision could be the reason why the final inflation numbers are turning out to be a lot higher than the provisional figures.

It’s possible that in some cases, the index may have remained unchanged, but there is no way of knowing why the index has not been updated. This has a policy implication because WPI is the most important inflation input for the conduct of monetary and fiscal policy. The WPI index was last recast in 1993-94. An exercise to update the index and restate the indices to a new base year 2000-01 is underway.

April 14, 2008
Source: Economic Times

5% share in world trade by 2020 achievable for India

The growth-oriented annual review to the Foreign Trade Policy will boost Indian exports and help the country achieve the ambitious target of five per cent share in world trade by 2020, a survey by CII has said.

"The annual supplement to the Foreign Trade Policy (2004-09) has fulfilled the Indian industry expectations," a CII CEO Opinion poll said. Over 73 per cent of the respondents said the target of India achieving 5 per cent share in world trade by 2020 is ambitious but achievable. At present, India's share in the global trade is about one per cent.

Majority of the respondents said the FTP review is growth-oriented and would help in sustaining the 8.5 per cent growth rate of the country, besides, giving the much-needed boost to the rupee-hit exports.

About half the respondents said measures taken in the policy would help enhance their competitiveness and profitability in the global market.

The government has set an export target of USD 200 billion for the 2008-09, up from USD 160 billion last year. It announced extension of the Duty Entitlement Pass Book (DEPB) scheme till May 2009 and tax exemption to 100 per cent Export Oriented Units till 2010.

April 14, 2008
Source: Economic Times

India able to contain inflationary expectations: Chidambaram

While expressing concern over rising global commodity prices, Finance Minister P Chidambaram on Saturday said India has been able to contain inflationary expectations even though headline inflation has gone above the tolerance level of five per cent.

"While inflationary expectations remain contained, headline inflation rose above the projected tolerance level of five per cent recently, reflecting higher food, fuel and other commodity prices, particularly metals," Chidambaram said while speaking at the 7th meeting of the International Monetary and Financial Committee.

According to the latest government estimates, inflation soared to 7.41 per cent, the highest in the past 40 months.

He said emerging markets, including India, could find it difficult to sustain the economic growth if apprehensions about the US recession turn out to be correct and the growth in euro area slows more than currently anticipated.

Chidambaram also told the international community that India remained committed to "economic reforms and conduct macroeconomic policy to enable continuation of the growth momentum with stability."

Welcoming recent reforms in the voting pattern at the IMF, Chidambaram said, "We would urge member-countries whose support is crucial for implementing this key element to be open to a review of this issue in the next two or three years," he said.

April 12, 2008
Source: Economic Times

Industrial growth jumps 8.6% in Feb

India’s growth story remains robust, if you go by industrial production. The Index of Industrial Production (IIP) rose 8.6% in February 2008, with capital goods growth rebounding to double-digit levels after falling to an inexplicable low of 2.1% in January, and consumer durables climbing out of negative territory.

This comes as good news, as the IIP growth rate had dipped to 5.8% in January from 7.7% in December. Industrial growth at 8.6% in February 2008 is still lower than the 11% achieved in February 2007.

The data is sure to give policymakers more room for manoeuvre, as they try to balance growth and inflation and come under pressure to tighten monetary policy to control inflation.

The growth figures in some of the vital sectors like capital goods have brought cheer and confidence in the economy. Prime Minister’s economic advisory council member Saumitra Chaudhuri said, “Capital goods growth, which, by falling to 2.1% in January, 2007-08, had policymakers worried, is back in double digit at 10.4% in February 2007-08. However, it is lower than 18% witnessed in February 2006-07.”

The story in consumer durable sector, which includes automobile and whitegoods, has also bettered. From a negative 3.1% in January, the growth in consumer durables sector bounced back with 3.3% growth in February 2007-08, and is near double of 1.8% in February 2006-07.

Mr Sen said, “The consumer durables sector is bearing the brunt of higher interest, as demand is interest-sensitive. And one can expect a bounceback only if interest rates come down from the prevailing levels. Besides, implementation of the 6th Pay Commission recommendation could also provide some impetus.”

The consumer non-durable sector, comprising largely FMCG products, grew by a whopping 11% in February 2007-08 compared with 9.3% in the same month in 2006-07. The sector’s performance is expected to better with customs duty cuts in edible oils and excise duty cuts in the budget start playing on the demand.

April 12, 2008
Source: Economic Times

Blind controls to check inflation will hurt: PM

Even while expressing concern over rising commodity and food prices, the Prime Minister, Dr. Manmohan Singh indicated it would be undesirable to react to such a situation by “returning to an era of blind controls”.

Admitting that the economic reforms process would be adversely affected by rising food prices, he said, “Efforts to promote reforms and more open economies would be derailed in the face of persistent food shortages and rising food prices. A steep rise in food prices will make inflation control more difficult and can thereby hurt the cause of macro economic stability.” Dr Singh was speaking at Global Agro Industries Forum.

Conceding that pressures could mount for restrictive trade practices on the back of rising inflation, Dr Singh said, “It is my belief we cannot react to such a situation by returning to an era of blind controls and by depressing agriculture’s terms of trade. That will hurt the welfare of our farmers as well as the long term growth of the economy as a whole.”

On the food supply shortage, the Prime Minister said, “We are once again faced with a situation where rising demand for foodgrains and other food items is running into supply constraints – both domestically as well as internationally. This is a phenomenon, I believe, that is not unique to India. Similar pressures are being felt across the world in many other countries.”

He also pointed towards the shift in land away from food crops in the face of rising demand for bio-fuels. “Many countries are actively promoting the development of bio-fuels. What this has done is that for the first time, there is a direct linkage between oil prices and food prices. Food markets have got interlinked to oil markets, making food policy-making extremely complex as well as uncertain,” he said.

April 12, 2008
Source: The Hindu Businessline

Sector Specific

Telecom

Telecom sector likely to post 37% revenue growth in Q4

Overcoming the shadow cast by declining tariffs, the telecom sector is expected to witness an year-on-year revenue growth of 37% in the fourth fiscal quarter on the back of robust subscriber additions.

The top three listed mobile operators in the country — Bharti Airtel, Idea Cellular and Reliance Communications are likely to post an average 32% growth in net profit as over 26 million users signed up for cellular services during the period.

The three telcos will post a sequential growth of 7.8% in aggregate topline for the March 2008 quarter while net profit is likely to grow by 3.9%, according to the consensus estimate of brokerage projections.

Sales would be boosted by continued momentum in the subscriber growth. Profits, however, would grow at a slower pace than before on account of higher finance costs and forex losses.

April 14, 2008
Source: Economic Times

Money in mind, PMO may force release of spectrum

The Prime Minister's Office (PMO) may tell India's defence forces to speed up the release of about 25 MHz spectrum for 3G services so that the DoT can auction these radio frequencies. The matter has already been discussed in a recent meeting between Prime Minister Manmohan Singh, communication minister A Raja and finance minister P Chidambaram.

ET has learnt that the PMO's intervention is not due to the fact that Indian telcos have been unable to launch 3G services. The real reason is that the UPA government requires money. Auction of 3G spectrum can fetch the government between Rs 15,000 crore and Rs 20,000 crore.

The UPA government therefore wants an auction by mid-2008 and has identified this as one of the options that will help it raise resources to meet its social obligations. Additionally, the UPA government is also of the view that any further delay of 3G auction could result in the current regime being unable to utilise its proceeds.

The communications ministry had recently forced defence minister A K Antony and external affairs minister Pranab Mukherjee by threatening to charge the armed forces Rs 5,000 crore per annum as spectrum charges. The DoT had also informed the armed forces that they would be treated on a par with telecom operators who pay spectrum charges.

Despite the DoT threat, the defence forces refused to budge. The armed forces pointed out that it could not vacate the radio frequencies as the Rs 980 crore alternative network being built for it was not good enough.

April 14, 2008
Source: Economic Times

Not bound to furnish Virgin details: Tatas to TRAI

The Tatas have told telecom regulator TRAI that they are not required to furnish details of their commercial and trademark agreements with UK-based Virgin Mobile. TRAI had launched an enquiry into the Tata Teleservices -Virgin JV based on media reports that had questioned the legality of the partnership under Indian laws.

It must be pointed out that the Department of Telecom has cleared the Tata-Virgin JV. Yet, both GSM players and Reliance Communications maintain that the deal enabled Virgin to enter the Indian market as a Mobile Virtual Network Operator.

Tatas have said their ‘arrangement with Virgin was for operations which did not require a Unified Access Service Licence as had been done for example by Essar to have Essar Mobile stores which too has an agreement with Virgin for use of its Virgin brand’. “We would like to submit that there is no need for us to furnish our agreements in respect of a separate company, Virgin Mobile, which is like a consultant or channeling agent for value added services and marketing inputs,” the company said.

Additionally, the Tatas have also pointed out that past experience showed that Trai had not sought copies of commercial agreements for non-UASL operations.

With regard to the trademark licence, the Tatas have said that ‘since it was a commercially sensitive agreement, the company may not be asked to submit a copy’. “We are not aware of any provider in UASL or any precedent whereby such agreement is required to be submitted,” the Tatas told TRAI.

The Tatas have also reiterated their stance to the regulator that having a second brand was not a new phenomenon in the Indian telecom scene. “Almost all operators have had foreign brands, including foreign brands for example, Essar Mobile had the Orange Brand from 2002-04,” the company added. Further, Tata Teleservices has also said that engaging another brand as a agent or consultant to carry out operations did not require an UASL and was being done in India by Yahoo, IBM and Nokia Siemens to other telcos to carry our support functions.

While replying to all queries raised by TRAI, the Tatas have also taken potshots at the regulator’s approach to the issue and said that an enquiry at the behest of press reports was not in the fairness of things: “We feel that Tata Teleservices is being asked such questions, which in the past, to the best of our knowledge, have never been asked to any other operators, who have operated with multiple brands, as also to the operators who have had supplementary agreements and arrangements like mobile stores or managed network services contracts on complete active network and UASL-linked operations,” the Tatas communication added.

April 14, 2008
Source: Economic Times

Mobile number portability by June '09

Telecom regulator TRAI on Friday recommended the implementation of nation-wide mobile number portability from June 2009 onwards in a phased manner. TRAI has also sought the Department of Telecom’s (DoT’s) nod to select an operator for providing and operating mobile number portability solutions.

Mobile number portability offers cellular subscribers the freedom to change service providers while retaining their numbers. Late last year, the government had approved its introduction and said that this facility would be available in the four metros by the second half of 2008.

The regulator has also forwarded the draft request for proposal to DoT for the selection of an operator which will be entrusted with the task of controlling and management of mobile number portability in the country.

Market surveys have shown that up to 50% of all mobile users in India are unhappy with their operator, and are willing to switch to another service provider if allowed to retain their number. Number portability has so far been introduced in Australia, Korea, Japan, Canada, the US, UK, most of Europe and Pakistan, among other countries. According to reports, its introduction has been followed by up to 50% subscribers switching operators in some of these countries.

April 12, 2008
Source: Economic Times

India surpasses US as second largest wireless market

India has added a massive 7.6 million new mobile phone users under the GSM technology in March, surpassing the US as the second largest wireless market, the Cellular Operators Association of India (COAI) said on Friday.

The total number of GSM users till March 31 stood at 192.35 million, an increase of four per cent from February when the base stood at 185 million, COAI said. The growth in March was "the highest ever subscriber additions since the inception of GSM service in India", it added.

"Aggressive network expansion, excellent affordability, ample choice of service and continuing customer pull for GSM" were cited as some of the reasons for the growth by COAI. The organisation also said the country is likely to become "the second largest wireless network in the world, after China" by the end of the current month.

Bharti Airtel, India's leading mobile phone service firm, added 2.31 million new users in March, taking its total base to 62 million and market share to 32.22 per cent.

Vodafone Essar, promoted by British telecom giant Vodafone, registered 44.12 million subscribers by adding 1.56 million new users last month against the preceding month's 1.41 million.

Aditya Birla Group's Idea Cellular added 1.12 million new subscribers against 918,871 users in February. Its total subscriber base stood at 24 million by end of March.

State-run Bharat Sanchar Nigam Ltd (BSNL) added 1.6 million users in March taking its total subscriber base to 36 million from 34.57 million in February, COAI said.

India is the world's fastest growing mobile phone market with the lowest call tariffs of below a cent. The market has emerged as the cynosure of global telecom giants. The latest to make a foray is the Richard Branson-promoted Virgin Mobile, which announced its entry into the Indian market last month in partnership with Mumbai-based Tata Teleservices.

The Indian government has set a target of 500 million users by 2010; half of this was reached last year.

April 11, 2008
Source: Economic Times

Power

Power situation to improve in Delhi

Delhiites could hope for a better power supply situation this summer with the Centre and the Delhi Government taking measures, including increasing the capital's electricity quota and setting up a special fund of Rs 400 crore.

"The unallocated central power quota for Delhi will be increased from 22 per cent last year to 40 per cent in the running year to meet the growing demand," the Minister of State for Power Jairam Ramesh told reporters here on Monday.

Ramesh, who met Chief Minister Sheila Dikshit to discuss the power-related problems in the capital, said he was also hopeful that 200 MW could be made available for Delhi from Damodar Valley Corporation within the next 30-45 days to avoid any crisis situation. He also disclosed that the Chief Minister has set up a special fund of Rs 400 crore, which will allow the discoms BSES and NDPL to draw power.

Ramesh, however, said interchange of power between BSES Yamuna and BSES Rajdhani, as requested by the CEO of the former, was not feasible.

The Minister informed that an investment of around Rs 33,000 crore will be made in the next few years in Delhi, with 45-50 per cent contribution from the Centre. The measures are expected to result in an increase of power availability in the next five years to 10,000 MW from the present 3,200 MW now, Ramesh said.

Expressing satisfaction over the "successful" privatisation of the power sector in Delhi, Ramesh added, "it is also the responsibility of the discoms to provide quality services to the people."

April 14, 2008
Source: Economic Times

TN taking steps to make state power surplus

Stressing the need for enhancing power production in the state, Tamil Nadu Electricity Minister Arcot N Veerasamy today said the state had initiated various measures to make the state a power surplus one.

Addressing the Tamil Nadu Vision 2025 Summit, organised by the Confederation of Indian Industry (CII) here, he said the state government had sanctioned various Merchant Power Projects to boost power production.

The government had planned to generate about 2000 MW from wind energy between May and December, of which nearly 1300 MW would be supplied to Power Trading Corporation, enabling the state to gain a profit of Rs 1000 crore. He said the state would be one of the key contributors in the power sector in the country.

The Minister said the government was actively considering motivating the private sector to set up solar power plants in the state. The proposed Power Transmission Corporation, to be set up at a cost of Rs 25,000 crore, would link the surplus power produced in the state to the southern grid in Bangalore, he added.

April 12, 2008
Source: Economic Times

Haryana to spend Rs. 722 crore on strengthening electric transmission

To further strengthen transmission and distribution network, the Uttar Haryana Bijli Vitran Nigam (UHBVN) has drawn a comprehensive investment plan of Rs. 722.74 crore during the current financial year.

Giving details, he said here today that Rs. 105.40 crore would be spent on setting up of 36 new 33 KV sub-stations, erection of 290 Km. long new 33 KV lines and augmentation of 20 existing 33 KV sub-stations.

It had been planned to set up ten new customer care centres at district headquarters at a cost of Rs. 4 crore. The Nigam had also planned to release 50,000 domestic connections to the people living below poverty line under "Rajiv Gandhi Grameen Vidyutikaran Yojna" for which a sum of Rs. 96.92 crore had been earmarked, he added.

He said that there was a proposal of bifurcation trifurcation of 125 overloaded and lengthy 11 KV feeders at a cost of Rs. 36 crore.

April 10, 2008
Source: Economic Times

Banking & Finance

Bankers say lending rates may go up post credit policy

In the backdrop of soaring inflation, some top bankers on Monday said lending rates could go up to 0.5 per cent after the Reserve Bank's annual credit policy which is widely expected to take stringent monetary measures to contain price rise.

Many expect the central bank to effect a hike in cash reserve ratio (CRR), the rate of amount all commercial banks need to keep with the Reserve Bank, in its annual credit policy on April 29.

A 0.50 per cent hike in CRR, aiming to to suck out up to Rs 20,000 crore liquidity from the system, could well imply a 0.25-0.50 per cent hike in lending rates across all major portfolios, bankers said. A few banks might cut their deposit rates as well, they added.

Many banks, including SBI, had revised their lending rates downwards early this year, heeding to calls from the government and the central bank.

A further hike in lending rates could affect profitability of lenders as many banks have already seen a decline in their credit growth in the last fiscal, slipping to 20-22 per cent as against a 30 per cent growth witnessed in the previous year.

Echoing similar views, Bank of India's Executive Director K R Kamath said if a hike in CRR was effected, banks would have to pass on the burden either to borrowers or depositors. "We may either opt for a hike in lending rates or a cut in deposits rates after assessing the situation," Kamath said.

April 14, 2008
Source: Economic Times

Incremental bank credit growth slows down

The incremental growth in net bank credit for the year 2007-08 is lower at 23 per cent against 29 per cent in 2006-07, according to the Reserve Bank of India figures.

The increase in non-food and food credit in fiscal 2007-2008 was Rs 4, 42,365 crore. Between April 2006 and March 2007, it had registered an increase of Rs 4, 31,147 crore. Credit growth has also slowed down in the recently concluded fiscal.

The total bank credit for 2007-08 was Rs 23, 48,493 crore against Rs 19, 28,913 crore last year, working out to a growth of almost 22 per cent. Against this, the credit growth in 2006-07 was almost 28 per cent.

Most bank officials feel that given the high inflation figures, the slowdown in credit and the surplus money supply in the system, the RBI is likely to hike the Cash Reserve Ratio. Hiking key interest rates such as the reverse repo would put additional pressure on banks, but a hike in CRR would help suck out the surplus liquidity from the system, said bankers. Incidentally, for the last fortnight of the fiscal ended March 28, the net bank credit saw a huge increase of Rs 75,891 crore.

This is about Rs 20,000 crore higher than the corresponding period in the previous year.
According to a senior bank official from a public sector bank, this sudden increase is not only due to window-dressing. The last fortnight of March saw a lot of tax outflows, which is charged to the cash credit accounts of corporations and therefore, gets reflected in the non-food credit, he said. A lot of corporations, particularly oil companies, also exercised the last of the loans sanctioned to them, which also added to the credit during this period, he added.

April 12, 2008
Source: The Hindu Businessline

Yes Bank eyes two private sector banks for acquisition

Private sector lender Yes Bank has zeroed in on two banks as possible acquisition targets and could execute the buy-out in 2009-10 a top bank official said. "We have one or two banks on our radar...in 18-24-month time, we should be looking at this (a possible acquisition)," Yes Bank Chairman and Managing Director Rana Kapoor said in an interactive session with PTI here.

With bank valuations still at reasonable levels and not expected to increase in the medium-term, an acquisition would certainly be attractive, he said without giving the names of the two banks in its radar.

"The good news is that valuations are not increasing." Ruling out its acquisition by another bank, the Yes Bank chief said that "(We feel) it would not be desirable to merge with other banks. We don't want to lose our identity, lose direction and lose our vision by doing so."

He was responding to reports that a few foreign banks had expressed their interest in acquiring the new generation lender. Recently, HSBC Bank hiked its stake in the bank to 4.88 per cent, which Kapoor termed as "a purely financial investment".

While Kapoor remained tight-lipped, the banking industry grapevine feels Karnataka Bank, Karur Vysya Bank and Kerala-based Catholic Syrian Bank, Federal Bank and South Indian Bank could be potential acquisition targets.

April 11, 2008
Source: Economic Times

PSU banks opting for longer term securities

Public sector banks have begun picking up longer tenure Government securities departing from a two-year trend. Bankers said that as a result of the pursuit of longer term securities, average tenure of their portfolios was expected to rise to about 5 years. Till March 2007, bankers had an average duration of just 3 years that included both the held-to-maturity category and marked-to-market categories.

In 2007, the preference was for liquidity. The tenure of marked-to-market categories of securities, Available-for-sale and the Held-for-trading categories, were just about a year for public sector banks and under one year for private sector banks.

Moreover, most banks had anticipated that the Reserve Bank of India would migrate to the international norms for valuation of investments, in line with the Basel-II guidelines. Internationally, all investments are marked-to-market. Consequently, the preference was for shorter tenure securities, to avoid losses due to depreciation. Bankers said that the RBI had clarified those HTM investments could continue to be valued on the basis of the cost of acquisition.

However, bankers said that the preference for longer term securities was largely due to the low credit offtake. Credit offtake during the peak season had been far lower than expected. Credit growth during the whole of last year was just about 17.5 per cent for the whole of 2007-08 against the previous year’s 24 per cent growth.

Public and private sector banks as a result were left with flush with cash. The high cash position was evident from the bids at the daily liquidity adjustment facility auction.

April 11, 2008
Source: The Hindu Businessline

Steel

Ban on steel exports can hurt economy: Producers

Amid the government move to ban exports of finished steel, the producers today said curbs on shipments could lead not only to bleeding of their coffers but also to a loss about Rs 20,000 crore to the country in foreign exchange earnings.

"A major part of exports of steel consists of products which do not have a domestic market or are surplus to domestic requirements. This material will become an immense idle inventory, adding to woes of the industry," Indian Steel Alliance President Moosa Raza said in a letter to Prime Minister Manmohan Singh.

With export price at about Rs 1,100-Rs 1200 per tonne, FOB and domestic ex-works price prevailing around 850 dollars, the incremental 200-250 dollar margin translates to Rs 4,000 crore of loss per million tonne on an annualised basis with current exports at about 4.5 million tonne per annum, he said. The Rs 20,000-crore loss to the nation comes from exporting 4.5 MT of steel at an average price of 1,100 dollars per tonne.

Raza said total percentage of steel exports are not more than 6-8 per cent of total domestic production. "Would a total ban on the export of steel make steel available in significant quantities within the country to ease inflationary pressures?" the ISA President said.

He said with a blanket ban on exports, what would happen to the steel which has to be produced or to the equipment established which would be rendered idle and infructuous. "Will it not be a direct loss to the national economy?" he asked.

April 13, 2008
Source: Economic Times

Steel costlier by Rs 5,000/t

In a move that could further spur the inflationary trend, steel prices on Wednesday went up, with primary steel makers effecting a flat raw material surcharge of Rs 5,000 a tonne in prices of all grades of hot-rolled steel.

Along with the existing 14 per cent excise duty, this would lead to a net increase of Rs 5,700 a tonne to the end customer. The wholesale price of standard 2 mm hot-rolled coil in Mumbai would now stand at Rs 49,200 against Rs 43,500 on April 1 this year, according to data available with the Joint Plant Committee.

Essar Steel, Ispat Industries and JSW on Wednesday increased prices and the others are expected to do the same during the week, industry officials said. Reacting to the sudden price hike, the Steel Minister, Mr Ram Vilas Paswan, said that the Ministry has sent its recommendations on controlling the prices to the Prime Minister’s Office and that he had also written to the Prime Minister.

The President of Indian Steel Association, Mr Moosa Raza, said that “NMDC has said that it would increase prices with effect from April 1. But the quantum of increase would be known only at the end of May after it completes its long-term negotiations with the Japanese buyers.”

Justifying the price hike, officials in steel manufacturing companies said that apart from iron ore, there had been severe increases in coal and gas prices due to shortages.

April 11, 2008
Source: The Hindu Businessline

Cement

Govt bans cement exports to stem price rise

The Centre on Friday decided to ban cement exports from the country in an apparent attempt to improve supplies in the domestic market and stem cement price rise during the coming months.

“We have decided to ban cement exports. The order would be issued today. April-June is a period when demand for cement in quite high. This move would improve availability of cement,” Mr Kamal Nath, Union Commerce and Industry Minister, told reporters soon after he announced the annual supplement to the foreign trade policy here today.
Official sources said that the Government was, through this move, trying to send a signal that it would step in to address inflationary concerns.

However, analysts contend that the ban on cement exports was unlikely to have any major impact on the domestic prices as the industry’s annual export was not more than two per cent of total production. It was felt that companies need not reduce price at all as domestic demand was quite strong.

To ease supply constraints and facilitate imports the government in January 2007, scrapped duties on cement imports and followed it up by abolishing the 16 per cent countervailing duty. To discourage cement exports, the government had recently withdrawn Duty Entailment Pass Book benefit on cement.

April 12, 2008
Source: The Hindu Businessline

Cement firms add 17 mt capacity in fiscal 2008

Cement companies have added an additional capacity of 17 million tonnes (mt) in fiscal 2008, as against six million tonnes the previous year. In April 2007, the industry announced a capacity addition of 100 mt over the next three years.

“Though the projects were announced in FY08 it will take at least three to four years for the companies to complete the projects,” said Mr Kamlesh Jain, research analyst, Prabhudas Lilladher Pvt Ltd.

Capacity addition could be marginally higher if one takes into account the many capacity expansions by small and medium-sized companies, said an analyst. Production for the year ended March 31, 2008 has increased 7.09 per cent to 166 mt.

Apart from land acquisition and sourcing of equipment, obtaining mining leases from the State Governments, besides escalating production costs due to higher raw material costs have led to a slowdown in expansion.

Among the major projects expected to go on stream by September this year include that of Grasim and Madras Cements. Grasim has planned a 4 mt-a-year green field unit in Rajasthan and Madras Cements intends to enhance capacity by 2 mt through a greenfield expansion at Ariyalur in Tamil Nadu.

Strong demand led to a 17 per cent rise in prices to Rs 258 a 50 kg bag in 2007-08. Mr Vinod Juneja, Deputy Managing Director, Binani Cement, said, “The price rise is basically due to higher raw material cost. Coal prices have gone up almost 100 per cent in the last one year, while that of other raw materials were up 30-35 per cent.”

April 11, 2008
Source: The Hindu Businessline

Agriculture

20 farm suicides in three days in Vidarbha

Despite the central government's unprecedented Rs 60 crore ($15 billion) loan waiver, farm suicides continue unabated in Vidarbha with as many as 20 of them reported from different districts of the region in the last 72 hours.

While the latest, of a 65-year-old farmer, was reported from village Kondala in eastern Vidarbha's Chandrapur district Saturday, 18 of the 20 suicides occurred in the region's western part, comprising Yavatmal, Amravati, Buldana, Akola and Washim districts.

The Kondala farmer, Rambhau Kale, who jumped in a well Friday midnight, had taken Rs.95,000 in loans from two banks - the district cooperative bank and land development bank, besides some amounts borrowed from relatives, his family sources said.

"Besides being worried about the loan, the old man was also depressed because of his ill health and mounting medical bills," Vidarbha Jan Andolan Samiti (VJAS) president Kishor Tiwari told IANS, quoting Rambhau's son Vitthal. Returning from a private hospital in the sub-district headquarter of Warora Friday morning, Rambhau reportedly told his son that he would "die in debt". Rambhau owned 10 acres of arid land and, therefore, was not eligible for the loan waiver, which is applicable only to farmers owning up to five acres.

Another of Vidarbha's baffling suicides was that of Babanrao Jeughale of village Varvand in Buldana district who on Friday jumped onto a burning haystack. Son of a former moneylender, the 48-year-old Jeughale had sold four acres of land two years ago to raise money for his daughter's marriage.

With a bank loan of over Rs 40,000, the farmer had yet another worry - of raising money to pay donation for his HSC-pass third daughter's admission to a D Ed (Diploma in Education) college or terminating her education, Dattatray said.

The 20 suicides, reported between Friday and Sunday, have taken the toll in Vidarbha since the announcement of the union budget to 116 and since Jan 1 this year to 282, the VJAS leader said.

Tiwari said, the loan waiver, even after raising the five-acre land holding cap, would not by itself end the complex agrarian crisis. "Farmers, particularly the cotton cultivators in Vidarbha, must get remunerative prices for their produce. Also, a regulatory mechanism to reduce their input costs must be devised," he said.

April 14, 2008
Source: Economic Times

FCI may top wheat procurement target

The Food Corporation of India (FCI) is likely to meet its target of procuring 150 lakh tonnes of wheat for buffer stocks and perhaps exceed it despite talks of the crop being affected by last week’s rain and hailstorm.

Factors favouring FCI are higher costs of procurement that hinders buying by private agencies and the move to pay 2.5 per cent commission to “arthiyas” (commission agents) in Uttar Pradesh as is being done in Haryana and Punjab, according to traders.

Food Ministry officials, too, agree, saying Madhya Pradesh, Rajasthan and Bihar could also be contributing to the Centre’s pool of food stocks this year. This year’s procurement target is against 111.04 lakh tonnes procured last year. As on April 1, wheat buffer stocks were 58 lakh tonnes against the norm of 40 lakh tonnes.

April 13, 2008
Source: The Hindu Businessline

Govt may allow premium non-basmati exports: Exporters

Indian rice exporters expect the government to allow exports of a superior grade of non-basmati rice, which may add nearly 300,000 tonnes to the tightly supplied international market, traders said.

The government has held talks with rice exporters, who have been hit by a decision to ban overseas sales of all non-basmati rice to increase domestic supplies and lower prices. "We are expecting a decision on this in the next 10-15 days," Vijay Sethia, president of the All India Rice Exporters' Association told reporters on the sidelines of a conference.

He said the government was likely to broaden the definition of basmati rice to include the high-yielding aromatic Pusa 1121 variety, which would allow exports. A rice exporter, who did not want to be identified, said 300,000 to 350,000 tonnes of Pusa 1121 are produced a year in India out of which 90 percent was exported.

After India restricted rice exports traders complained that certain superior grades, which the poor could not afford, would also be hit by the blanket ban on non-basmati exports.

Sethia said Pusa 112 had a higher yield than other grades and export prices were at $1,600 per tonne, the same as basmati rice.

April 11, 2008
Source: Economic Times

NABARD gears up to start farmers' loan waivers by June

National Bank for Agriculture and Rural Development (NABARD) is all geared up to implement the Rs 60,000 crore loan waiver scheme for farmers announced by the UPA Government.

NABARD Chairman and Managing Director U C Sarangi said that the preparatory work was being initiated to ensure that the waiving of loans begins well before June end, which is the stipulated date for waiving off loans during the current year. The NABARD will be involved about loan waiver of farmers from Cooperative Banks and Regional Rural Banks.

Sarangi also said that total number of Kissan Credit Cards in the country has rose to over seven crore with an addition of about 30 lakh cards last year. He said the cooperative banks issue half of these credit cards.

The bank recorded a 21 per cent growth in its business operations with its turnover touching Rs 98,500 crore in 2007-08.This is an all time high. The previous year's growth was 17 per cent.

April 9, 2008
Source: Economic Times