Growth may fall below 8%, export sops to go

A recent survey has put out a stark warning about an impending global recession that could be far worse than most people expect. India, obviously, would not be an exception although some economists are still willing to bat for its long-term prospects.

- Chillibreeze Business Research Team

Government Policy & Infrastructure

Economy

Sector Specific – Telecom

Banking & Finance

Power

Steel

Cement

International

Agriculture

Government policy & Infrastructure

Marathon expects Navi Mumbai SEZ to generate jobs

Mumbai-based Marathon Group expects around 50 to 60 companies to set up their shop in the newly commissioned IT-ITeS Special Economic Zone (SEZ) and generate about 15,000 direct employment.

"The SEZ is spread over three million sq ft of which two million sq ft is planned for IT-ITeS space while the rest is for the social infrastructure and residential purpose," Marathon group's Managing Director Mayur Shah said.

"The SEZ will be generating 12,000 to 15,000 direct employment besides indirect employment of 2,000 to 3,000," the MD said.

Shah is in Goa to participate in the IT specific international conference in South Goa, organised by Mecorp Media Group Worldwide (MMG).

Shah said the new SEZ at Navi Mumbai, few distance away from proposed airport, was getting good response from firms.

The company targetting the Tier II cities, mostly around Mumbai, have planned its next SEZs in Thane and Panvel.
Shah stated that these SEZs are in planning stage.     
"In the metros, real estate prices are high so we thought about the second tier cities," he added.

June 29th, 2008
Source: Business Standard

Water Resources Min pushes for Rs 1500 cr

An additional Rs 1,500 crore budget funding has been sought for the current financial year for speedy implementation of major and medium irrigation projects in Karnataka, Water Resources Minister Basavaraj Bommai said.

Bommai said allocation for these projects earmarked in the budget presented by the Governor Rameshwar Thakur when the State was under President's Rule was around Rs 3,600 crore which was "less to take up real works".    
"We have sought an increase of Rs 1,500 crore in the coming budget (to be presented by the BJP government next month)", he told reporters here today.

Bommai also said three companies coming under his ministry — Krishna Bhagya Jala Nigama, Kaveri Neeravari Nigama and Karnataka Neeravari Nigama — would start declaring quarterly results.     
This would enable to get an update on where they stood in terms of meeting targets and make them more accountable, he added.

He said he has started interacting with Chief Engineers across the State on a daily basis to give a push to various projects and facilitate faster decision-making, through videoconferencing facility.    
"We are targeting to complete the 12 months work, within eight months (before March)", Bommai said.

June 28th, 2008
Source: Business Standard

Bank of Baroda hikes PLR by 0.5%

Public sector lender Bank of Baroda (BoB) today decided to increase its benchmark prime lending rate by 0.5 per cent to 13.25 per cent.

BoB's PLR would go up from the existing 12.75 per cent and the new rate would be effective from July 1, the bank said in a filing to the Bombay Stock Exchange.

The lending rate revision would lead to increase in PLR-related lendings like floating home loan, corporate loan, car loan etc.

BoB's announcement came after major public sector lenders SBI and PNB raised their BPLRs by 0.5 per cent to 12.75 per cent and 13 per cent, respectively.

Similarly, Bangalore-based Canara Bank also hiked its BPLR by 0.5 per cent to 13.25 per cent.

The move also follows suit of a host of lenders such as HDFC Bank, Jammu & Kashmir Bank and Yes Bank, which hiked their respective BPLRs in the range of 0.25 per cent to one per cent to protect margins.     
The rate hike comes in the wake of RBI increasing its short-term lending rate and the mandatory level of deposit that banks are required to park with the central bank by 50 basis points each to contain inflation.

June 28th, 2008
Source: Business Standard

Govt links subsidy on key fertilser to import prices

The Union cabinet on Thursday said the pricing of subsidy on di-ammonium phosphate (DAP) would be tied to import costs, aimed at spurring local production.

Some states have witnessed shortage of complex fertilisers in recent weeks as fertiliser firms curbed imports of key raw materials sulphur and phosphoric acid due to soaring international prices.

"This will ensure competitiveness and also provide rational basis. Now the entire indigenous DAP will be paid for on par with imported DAP," fertiliser secretary J S Sarma told reporters.

In FY08, India imported half its DAP requirement of 8 million tons.

Shares of complex fertiliser makers Tata Chemicals, Coromandel Fertilisers and Gujarat State Fertilisers & Chemicals rose on the news to end 5-9 per cent higher.

Shares of urea makers Rashtriya Chemicals & Fertilisers and Nagarjuna Fertilisers also rose, on hopes urea too would get import parity pricing - a key demand by the industry - as part of the long overdue urea investment policy.

India, the second-largest fertiliser consumer in the world, imports nearly a quarter of its total demand of 46 million tonnes a year. While 60 per cent of this is urea, the rest of it comprises DAP, potassium and phosphate-based fertilisers.

To ease the burden on farmers, the federal government caps retail prices for farmers, but compensates producers for the deficit through a mixture of cash subsidy and bonds.

Total subsidy for 2008/09 has been estimated at 950 billion rupees, more than double from the previous year as a global foodgrain shortage has driven up prices of raw materials and global demand for fertilisers.

June 26th, 2008
Source: Economic Times

Economy

Export sops to go as rupee falls

A host of sops given last year to Indian exporters to help tide over the sharp appreciation of the rupee will not be extended by the Centre beyond September 30, when the sops are set to expire. This is on account of the rupee depreciating about 10 per cent against the US dollar since April this year. The rupee is expected to continue to weaken from its current level of nearly Rs 43.

The sops that will be rolled back include interest rate subvention on pre- and post-export credit as well as the 1-3 per cent increase in duty drawback and duty entitlement pass book scheme (DEPB) rates, which were announced in various phases last year. The enhanced duty drawback and DEPB rates will be rolled back to the values which they were in before the sops were announced.

However, service tax exemption to export-related services will continue. Duty drawback and DEPB are used by exporters to get credit on various duties paid by them while manufacturing the goods meant for exports.

"The sops are likely to be rolled back. The decision is likely to be formally announced later this month," said Commerce Secretary Gopal K Pillai on the sidelines of a function organised by the Delhi Exporters Association.
Exporters will, therefore, get a two-month cushion, allowing them to adjust their long-term export contracts accordingly.

As nearly 70 per cent of India's export orders are dollar denominated, exporters suffered losses while converting their dollar earnings to rupees, when it was appreciating.

While the finance ministry will be responsible for the roll back of the hiked draw back rates and interest subvention in pre- and post-export credit, the commerce ministry will issue a order on ending the enhanced DEPB rates.

July 1st , 2008
Source: Business Standard

Growth slips on oil price rise, may fall below 8%

Rising crude prices and inflation could impede the country’s growth this year. While the economy may grow at less than 8% in the short term, it will re-bounce in the medium term, according to Planning Commission deputy chairman Montek Singh Ahluwalia.

“With crude prices pushing up inflation, economists have forecast our growth rate to slow down to below 8%. I will go with the finance minister who is watching the situation on a daily basis. I will be quite happy with around an 8% growth,” Mr Ahluwalia said.

Inflation, measured by the wholesale price index, touched 11.42% in the second week of June even as global crude prices crossed $141 per barrel on Friday.

Mr Ahluwalia made it clear that the commission would not look at short-term growth targets. Its outlook is only for a medium-term of five years. And the commission is targeting a 9% growth in the medium term.

According to him, oil prices may soften in the long term. “Currently, oil prices are unreasonably high and it has led to inflation. It takes some time to bring it under control,” he told reporters on the sidelines of a conference on Growth and Development in the Lagging Regions of India’ organized by the Administrative Staff College of India.

According to Mr Ahluwalia, growth is fundamentally not a dysfunctional process. “Despite inter-state disparities in economic development, it will be wrong to say that poor states are doing badly. Bihar, for instance, has recorded 4.7% growth rate during the 10th plan as against 2.2% during the 8th plan. Though this is below the national average growth rate, the state has done well in absolute terms,” he said.

He pointed out that even within developed states like Maharashtra certain regions like Vidarbha remain under-developed. “We need to have district-specific domestic product data to address inter-state and intra-regional issues,” he said.

This year, the government is planning to collect data related to districts. It is also planning to document data related to poverty and development in various districts. In fact, until the 11th plan, state-specific growth plans were not there. “Inclusion in the 11th plan is a multi-dimensional process. Every group should be adequately represented in the income strata and every region should feel they have a stake in the growth process,” he said.

The government needs to come out with specific anti-poverty programmes to ensure uniform development across states. “We need to build infrastructure and connectivity in these areas besides encouraging agriculture. We should also look at exploring mineral resources in some areas in an inclusive manner,” he added. a

June 29th, 2008
Source: Economic Times

PM pushes for ‘green’ energy tags

Amid spiralling crude oil prices, the Prime Minister, Dr Manmohan Singh, on Friday asked the Ministry of New and Renewable Energy to draft schemes and guidelines for the introduction of ‘Renewable Energy Certificates’ to encourage States to promote and trade in renewable energy.

At a meeting of the Energy Coordination Committee chaired by him, Dr Singh underlined the importance of developing renewable energy in India.

The proposed certificates would designate ‘green power’ as a tradable commodity and promote inter-State sales of renewable generation.

The Government has already kicked-off the process of hiring consultants for the development of a Renewable Energy Certification mechanism for India on the lines of ‘green tags’ being used in the US and the UK, which would provide a platform for trading between renewable energy surplus and deficit States, with provisions for a clearing house mechanism and energy accounting framework.

Dr Singh said the Centre will soon set up a solar energy mission and promote the use of solar lanterns across the country.

Members of the coordination committee emphasised the vital importance of replacing kerosene lanterns with solar lanterns on account of India’s import dependence on crude oil, the high fiscal subsidy for kerosene and the environmental benefits of solar energy over kerosene.

The Prime Minister asked the Minister of New and Renewable Energy to come forward with a comprehensive action plan for new and renewable energy development in consultation with State governments.

June 28th, 2008
Source: Business Standard

India ranks low among best nations for biz: Forbes

India has been ranked 64th in a global list of best countries to do business in, dropping from 51st place last year. While India has dropped 13 places, China is down two notches to No 79.

In the new Forbes study that compared business climate from various angles in 121 countries, Denmark tops the list, having displaced the US, last year's leader. Ireland and Finland follow at No 2 and No 3 spots. US is at No 4 now, followed by UK.

The Forbes report has ascribed India and China's fall in rankings this year to "demonstrated resistance to increasing personal freedoms. Higher inflation from food and other commodity costs, as well as increased burdens on entrepreneurs also held the world's most populous nations back as business destinations".

Pointing out that the Indian government has reduced controls on foreign trade and investment, the business magazine said tariff spikes in sensitive categories, including agriculture, and incremental progress on economic reforms still hinder foreign access to India's vast and growing market.

"Privatisation of government-owned industries remains stalled and continues to generate political debate; populist pressure from within the UPA government and from its Left Front allies continues to restrain needed initiatives," the report added.

Forbes said that strong growth combined with easy consumer credit and a real estate boom fuelled inflation concerns in 2006 and 2007. This had led to a series of central bank interest rate hikes that have slowed credit growth and eased inflation concerns.

For the study, the magazine said it used expertise, research and published reports from the Heritage Foundation, World Economic Forum, World Bank, Transparency International, Freedom House, Deloitte Tax, the US Chamber of Commerce and Central Intelligence Agency and their vital analyses of various socioeconomic indicators on the countries included.

Investor protection examines the recourse held by minority shareholders in cases of corporate misdeeds, while corruption looks at the number and frequency of similar misuse of corporate assets for personal gain. Together with economic policies supportive of free trade and low inflation, these key points form a snapshot of countries' suitability for capital investment.

In developed nations like Germany (No. 21, down nine) and France (No. 25, down nine), scandals in the banking sector and tougher barriers for entrepreneurs led to declines.

One of the biggest declines, the magazine said, came from Japan (No. 24, down 21), where a Council on Economic and Fiscal Policy spelled out problems with the world's second-largest economy earlier this year. Among others, the committee's report cites the nation's 40 percent corporate tax rate as uncompetitive compared with regional rivals like Hong Kong at 17.5 percent and South Korea at 25 percent.

June 28th, 2008
Source: Economic Times

Inflation rises to 11.42%

The Wholesale Price Index-based inflation shot up further to 11.42 per cent during the week ended June 14, up from the previous week’s annual rise of 11.05 per cent.

The latest rise in the year-on-year inflation was driven by an across-the-board increase in price levels. Inflation in the manufactured products rose 9.74 per cent , up from 9.09 per cent during the previous week, with dairy items (11 per cent), edible oils (16 per cent), liquor (10 per cent), paints (13 per cent) and iron and steel (34 per cent) contributing to the rise. Inflation in primary articles also climbed up to 10.96 per cent, from 10.78 per cent , mainly on account of fruits (12 per cent), milk (9 per cent) and spices (11 per cent). Inflation in the fuel group rose further to 16.37 per cent from 16.25 per cent, with the mineral oils sub-group showing a 26 per cent increase in inflation levels.

Reacting to the numbers, Mr Subhashish Gangopadhyay, Advisor to the Finance Minister, told newspersons here that inflation would continue to remain in double digits for some more weeks even if prices fall due to the ‘base effect.’

According to the latest WPI data, items such as fruits and vegetables, for instance, have turned cheaper on a sequential basis, with inflation levels in the case of vegetable down marginally and fruits down nearly 2 per cent between the latest reported week and the one preceding it. The year-on-year comparison, on the other hand, point to inflation rising 12 per cent in the case of fruits and 3 per cent in the case of vegetables, mainly on account of the base effect.

Items where inflation continues to inch upwards, noticeably on a week-on-week basis, include tea, up three per cent sequentially, milk (one per cent), sunflower oil (four per cent) and vanaspati (two per cent). Among daily use items, inflation in the case of toilet soap shot up eight per cent, detergents nine per cent and hair oil one per cent. Among fuel items, lubricants turned dearer by 19 per cent on a sequential basis.

As per the revised WPI data, the inflation rate for the week ended April 19 was revised upwards to 8.23 per cent, as against the provisional estimate of 7.57 per cent.

June 28th, 2008
Source: Business Standard

Sector Specific

Telecom

DoT scraps plan to auction 3G for CDMA players

Seventy one million CDMA mobile subscribers face an uncertain future with regard to the availability of third generation mobile services.

Even as the Government is close to finalising the policy for 3G services for GSM operators, the Department of Telecom has dropped plans to auction spectrum for CDMA players.

The DoT has also not specified any alternate method for allocating spectrum to CDMA operators, according to the draft policy.

While the DoT had earlier proposed to auction bandwidth in 800 Mhz and 450 Mhz (frequencies used by CDMA operators globally for 3G services), the revised draft guidelines make no mention of the same. According to the draft, DoT is planning to auction spectrum only in the 2.1 Ghz band, which is the frequency for GSM-based operators.

While GSM-based operators will use the WCDMA technology for offering the 3G service, CDMA players will use the EVDO technology. Each of these technologies operates best in a specific frequency band. For instance, WCDMA technology operates best in the 2.1 Ghz band, EVDO needs 800 Mhz or even 1900 Mhz and 450 Mhz.

Reliance Communications, Tata Teleservices, Sistema-backed Shyam Telelink and State-owned Bharat Sanchar Nigam Ltd are the major CDMA operators in the country. Senior DoT officials said that the spectrum for these operators will be treated differently wherein they will be asked to pay a fraction of the amount quoted by the GSM counterparts for 3G services. However, the problem with this formula is that DoT has only 2 slots in the 800 Mhz band and there are four operators to accommodate. “This formula would have worked earlier when there was only Reliance and Tata as pan-India CDMA players. But now two more operators have come in and therefore the best option would be to go in for an auction,” said a CDMA industry expert.

CDMA operators have, meanwhile, approached the Government seeking clarity on their future road map. One of the options proposed by the operators is to allow them to use the existing bandwidth for offering 3G services. All the four CDMA operators have spectrum in the 800 Mhz band, which they are currently being used for offering 2G mobile services. Some part of this can be dedicated to offer 3G services. DoT has so far blocked this option on the grounds that it will disturb the playing field with GSM players. The other option is to find capacity in the 450 Mhz and 1900 Mhz frequency bands and allocate it to the operators.

June 28th, 2008
Source: The Hindubusinessline

Power

MNRE announces incentive for wind energy projects

The ministry of new and renewable energy (MNRE) today announced an "incentive" of 50 paise per unit of wind-power fed by the independent power producers into the grid. The generation based incentive (GBI) is aimed at increasing the quantum of grid interactive renewable power.

"The investors, apart from getting the tariff (as determined by the state regulatory commissions) would get an incentive of 50 paise per unit of electricity for a period of ten years provided they do not claim the benefit of accelerated depreciation" said Vilas Muttemwar, minister of state for new and renewable energy.

The ministry had earlier announced the provision of 80 per cent accelerated depreciation under the income tax act for those investors who have a sound balance sheet to absorb the depreciation benefits.

The minister also added that the incentive will be provided to the eligible project promoters through Indian renewable energy development agency (IREDA) - a government company under the MNRE which promotes and extend financial assistance for renewable energy projects.

The IREDA will give the GBI to the generators through their bank accounts on a half yearly basis through e-payment. The incentive, however, will be limited only for those grid interactive wind power generation plants which have a minimum installed capacity of 5 mw and installed at project sites approved by the center for wind energy technology (C-WET).

Earlier this year, the ministry has announced a similar demonstration scheme to provide generation based incentive to grid interactive solar power projects of upto a maximum capacity of 50 mw.

The installed capacity of power from renewable energy sources stands at about 12,400 mw currently - out of which about 10,250 mw is connected to the grid. The government now plans to ramp up the capacity from renewable sources to 15,000 mw by the end of the current plan period (2007-2012). A major chunk of this renewable power capacity - 10,500 mw - is to come from wind energy.

June 28th, 2008
Source: Business Standard

Steel

Steel output growth slows, falls below Asian average

India has recorded the lowest growth rate in steel production among the five Asian countries for the first five months of 2008.

Indian steel production grew by 4.1 per cent during January-May against an Asian average of 7.9 per cent, according to data available with the International Iron & Steel Institute (IISI).

From 8.8 per cent in January this year, the growth steadily went down to 0.3 per cent in May.

In between, the growth rate in February remained at a stable 7.6 per cent before nose diving to 2.2 per cent in March. Production recovered rapidly in April and increased by 12.7 per cent.

According to a senior economist with the Steel Ministry, production in some plants had slowed down in March after operating above capacity during the earlier months due to mechanical reasons.

However, in net terms, the production increased by close to one million tonne (mt) from 21.97 tonne in the first five months of 2007 to 22.86 mt in the corresponding period of 2008, the official pointed out.

World steel production during the period increased by 5.6 per cent with the West Asian region showing the highest growth rate of 9.7 per cent, followed by the group of European countries outside the EU such as Turkey, Switzerland, among others, growing at 8.8 per cent.

June 29th, 2008
Source: The Hindubusinessline

Cement

Demand for cement seen softening

The hike in Cash Reserve Ratio and Repo Rate is likely to have a cascading effect on the cement industry, which is reeling under high input cost and Government measures keeping retail prices under check.

An expected slowdown in new housing and infrastructure projects due to rise in borrowing cost may soften demand for cement.

Mr A.L. Kapoor, Managing Director, Ambuja Cement, said the rise in cost of borrowing will shrink liquidity and push up working capital cost. The increase in interest rate may slowdown the housing sector and infrastructure projects and may soften the demand for cement in the short-term.

Buoyed by the strong demand, increased capacity utilisation and highly remunerative price levels many companies have rolled out major capacity addition plans.

Installed capacity of the cement industry is expected to increase to 219 million tonnes per annum (mtpa) by financial year 2009 from 198.62 mtpa in the financial year 2008. It will further go up to 241 mtpa by the financial year 2010, according to an ICRA Industry Monitor report.

Mr H.M. Bangur, Managing Director of Shree Cement Ltd and President Cement Manufacturers’ Association, said some of the projects which were viable earlier have to be shunned. “If the RBI move is to control inflation, we hope it will be reversed once the objective is met in two to three months,” he added.

Among major investments, the Anil Dhirubhai Ambani Group’s (ADAG) Reliance Cement plans four cement plants of 5 mt each with a total investment of Rs 10,668 crore. Dalmia Cement (Bharat) Ltd to invest Rs 1,400 crore to more-than-double its capacity to 8 mt by March 2009.

Burnpur Cement plans to invest Rs 10,668 crore over 7-8 years to increase cement grinding capacity from 0.3 mtpa to 10 mtpa. Jaiprakash Associates will invest Rs 4,242 crore by 2009 to increase its cement capacity by more than three-fold to 25 mt.

Though most of the investments may have been tied-up, the company spreads the fund rising programme to take advantage of fluctuations in the interest rate, said an analyst.

Mr A.K. Saroagi, CFO, J.K. Cement, hopes the cement demand will be intact. If the Government can achieve the projected nine per cent Gross Domestic Product growth, then the demand for cement will be buoyant, he said.

June 28th, 2008
Source: The Hindubusinessline

Money and banking

Bank of Baroda hikes PLR by 0.5%

Public sector lender Bank of Baroda (BoB) today decided to increase its benchmark prime lending rate by 0.5 per cent to 13.25 per cent.

BoB's PLR would go up from the existing 12.75 per cent and the new rate would be effective from July 1, the bank said in a filing to the Bombay Stock Exchange.

The lending rate revision would lead to increase in PLR-related lendings like floating home loan, corporate loan, car loan etc.

BoB's announcement came after major public sector lenders SBI and PNB raised their BPLRs by 0.5 per cent to 12.75 per cent and 13 per cent, respectively.

Similarly, Bangalore-based Canara Bank also hiked its BPLR by 0.5 per cent to 13.25 per cent.

The move also follows suit of a host of lenders such as HDFC Bank, Jammu & Kashmir Bank and Yes Bank, which hiked their respective BPLRs in the range of 0.25 per cent to one per cent to protect margins.

The rate hike comes in the wake of RBI increasing its short-term lending rate and the mandatory level of deposit that banks are required to park with the central bank by 50 basis points each to contain inflation.

June 28th, 2008
Source: Business Standard

International

Global economy set for worse-than-expected downturn: BIS

The world needs higher interest rates to tackle a clear inflation threat, even though economic growth is likely to be hit harder than most observers expect, the Bank for International Settlements said on Monday.

The Swiss-based BIS — a meeting place and think tank for the world's central banks — gave a gloomy outlook for both inflation and growth in its annual report, published after a three-day meeting of central bankers from over 100 countries. BIS General Manager Malcolm Knight said central banks faced their greatest challenge in years, with growth slowing even as inflation pressures intensified.

Clearly, the downside risks for future growth complicate the task of monetary policy, he said in a speech to the BIS annual meeting. But there must in the end be a forceful response to confront the danger that inflation expectations could rise appreciably, with all the attendant problems that would bring.

The tone of the annual report was darker than last year after what the BIS described as the worst financial market turmoil since World War II, and the bank saw a significant risk of recession in the United States, the world’s biggest economy. But this did not mean central banks should abandon their focus on fighting inflation, even if the BIS was concerned to point out that there was no single solution for all banks.

With inflation a clear and present threat, and with real policy rates in most countries low by historical standards, a global bias towards monetary tightening would seem appropriate. That said, the circumstances of different countries, both actual and prospective, currently rule out a 'one-size-fits-all' approach, the BIS said.

Moreover, should the global economy slow sharply and inflationary pressures recede, the bias to tightening would evidently also be reduced, it added. The BIS said the financial market turmoil which spread from the U.S. subprime mortgage market in the middle of last year was the consequence of a classic unsustainable credit boom, and that disruption to the banking system limited the potential of interest rate cuts to boost demand. Tax cuts and more government spending might have some merit, but the countries whose government finances were solid enough to afford that tended to be those less affected by the turmoil, the BIS added. In the aftermath of a long credit-driven boom, it would not be surprising to see turmoil in financial markets, slowing real growth and temporarily rising inflation, it said. Their interaction does appear to point to a deeper and more protracted global downturn.

July 1st, 2008
Source: Indian Express

Oil surges to $143 as global stocks fall further

Oil hit another record and global stocks fell further on Friday with the Dow briefly dipping into bear market territory as investors fled risk to the safety of gold, government debt and the Swiss franc.

With one trading session left in June, US stocks were headed to their worst month since September 2001, which marked the end of the last bear market -- typically defined as a 20 per cent drop from a bull market's peak. Crude surged to a new record of $142.99 a barrel before paring some gains.

Tumbling equity markets helped trigger a wider rally in commodities as investors took cash out of stocks and shifted to other assets that take advantage of inflation.

Gold rose to a one-month high, lifted by oil's fresh spike and a drop in the dollar against the euro. The safe-haven Swiss franc rose to a three-week peak against the dollar.

June 28th, 2008
Source: Economic Times

Agriculture

Step-up in kharif sowing augurs hope on inflation

Amidst the depressing inflation numbers, there is a silver lining. A combination of timely monsoon rains and remunerative prices has prompted farmers to plant more area under kharif crops, which could go some way in dousing inflationary expectations.

According to the Agriculture Ministry’s latest Crop Weather Watch report, released here on Friday, the coverage under most crops – from rice, maize, bajra and jowar to oilseeds and pulses – is so far higher than the last year’s corresponding levels. The only major crops to have witnessed a decline are cotton, sugarcane and jute.

In cotton, sowing is complete in North-West India, with all the three main States reporting lower acreage – Punjab (from 6.04 to 5.6 lakh hectares), Haryana (4.83 to 4.15 lakh hectares) and Rajasthan (3.50 to 1.36 lakh hectares).
In Punjab, more area has come under rice (from 8.11 to 10.48 lakh hectares), while farmers in Rajasthan has significantly expanded planting of bajra (from 0.07 to 8.84 lakh hectares), maize (from 0.07 to 2.20 lakh hectares) and jowar (0.02 to 1.60 lakh hectares). Rajasthan has also witnessed higher area under groundnut (from 0.21 to 1.47 lakh hectares) and soybean (from 0.22 to 0.63 lakh hectares).

All this has obviously been promoted by the early arrival of the monsoon showers. The potential threat of the mealy bug pest has led to less area coming under cotton in the three North-West States. Farmers have instead opted to plant more paddy and coarse cereals, which also promise better returns owing to higher prices and lower costs incurred on irrigation.

In sugarcane, there has been an almost 14 per cent drop in area, with Uttar Pradesh (from 21.2 to 17.4 lakh hectares), Maharashtra (8.10 to seven lakh hectares), Karnataka (2.19 to 1.63 lakh hectares), Gujarat (2.14 to 2.08 lakh hectares), Andhra Pradesh (1.78 to 1.29 lakh hectares) and Haryana (1.4 to 1.25 lakh hectares) reporting lower coverage. With sugar mills running up huge payment arrears, growers have chosen to divert cane area to other crops. In oilseeds, the area under groundnut has registered a sharp increase from 5.06 to 9.04 lakh hectares, mainly on account of Gujarat (1.91 to 5.30 lakh hectares). Other oilseeds, including soyabean, have recorded lower coverage so far, though the situation is likely to change in the coming weeks.

The good news as of now has been the performance of the South-West monsoon. During the season (June-September) as on June 25, the country as a whole has received a cumulative area-weighted rainfall of 154 millimetres (mm), 26 per cent more than the long period average (LPA) of 122.3 mm for this period.

June 28th, 2008
Source: The Hindubusinessline