Indian Economy

Economic Notes


Inflation moves downhill : The Inflation rate has declined to 4.68 per cent for the week ended July 8. The rate measured by the wholesale price index (WPI) has declined from 4.96 per cent, prodding Finance Minister P. Chidambaram to declare that inflation will be kept under control by the government and RBI. There is some uncertainty over inflation but I hope the uncertainty will get resolved in the next few days and weeks,” he told reporters. The minister also said current rate was at a tolerable level. “there is no reason for inflationary expectations,” he added.

The average inflation rate in the April-June quarter has been around 4.3 per cent. It has to average around 6.6 per cent in the coming months to exceed the RBI’s targeted annual range of 5-5.5 per cent for 2006-07. Consumer price inflation has been running around 70-100 basis points above the WPI inflation in 2006.





Forex reserves down : Forex reserves decreased by $601 million to stand at $162.639 billion during the week ended on July 14, as against $163.260 billion during the week ended July 7. The reserves had increased by $348 million during the preceding week ended July 7, compared to a week ago period. Foreign currency assets also decreased by $599 million to 155.716 billion during the week to July 14.



26 cities line for DMRC : The Delhi Metro success story is being replicated aross the country. As many as 26 cities are at various stages of planning and implementing a similar transport system. Of these at least 7 major cities are already implementing their Metro projets at an approximate cost of Rs 31,000 crore, according to the chief of Delhi Metro Rail Corporation, Dr. E. Sreedharan.

The projects in the 7 major cities include the 63 km-long Mumbai line costing Rs 10,600 crore, the Rs 3,970 crore project in Bangalore, the Rs 5,500 crore Hyderabad Metro project and Cheenai’s Rs 5,100 crore project. Apart from this, Kolkata is slated to have a new 18.7 km metro line at a cost of Rs 3,460 crore, while Ahmedabad will have one at a cost of Rs 2,600 crore.

Rupee turns weak against dollar : The rupee last Friday weakened marginally against the US currency after the overnight pull-back rally following dollar buying from oil corporates amid retreating dollar overseas. A sharp negative turnaround on the equity market, which fell by about 193 points during morning trade, also exerted pressure on the rupee.

In quietly active trade at the interbank foreign exchange (forex) market in Mumbai, the rupee opened steady at Rs. 46.7/9 a dollar from overnight close of Rs 46.7850/7950 per dollar but later came under pressure and depreciated to Rs 46.83/84 a dollar in late morning deals.

Govt. bonds firm : Indian federal bond yields fell last Friday as a section of the market speculated the central bank might leave interest rates unchanged at its monetary review on July 25. Indian Finance Minister P. Chidambaram said on Friday interest rates could moderate if inflationary expectations are dampened. India’s annual inflation stood at 4.68 per cent on July8, compared with 4.96 per cent a week earlier.

A Reuters poll showed most analysts expect the central bank to raise its key short term rate by 25 basis points to 6 per cent. Bond prices rose during the day as dealers expected the next bond auction would be postponed to after the monetary policy. The government is to borrow Rs 50 billion through 15-19 year bonds between July 17 and 25.

Sixth Pay Commission : The Cabinet has approved setting up of the Sixth Pay Commission for its 55 lakh employees. The Centre is expected to fork out an additional Rs 20,000 crore annually as pay and allowances, Parliamentary Affairs Minister PR Dasmunsi said. He said the three-member commission will give its report within 18 months.

In 2006-07, the Centre will pay Rs 50,000 crore as pay and allowances to its employees. This works out to 1.56% of the GDP for ’05-06, at current prices. Following the Sixth Pay Commission award, the total pay and allowances could increase by another 0.5% of the GDP. Mr Dasmunsi also said several state governments have asked the Centre to give them financial support to foot the bill. Gujarat and Madhya Pradesh have opposed setting up of the commission, six others, including Karnataka, Assam, Tripura, Orissa, Manipur and Nagaland, have asked the Centre to share the burden.



DoT to frame new spectrum policy : The Department of Telecommunications will frame a new spectrum policy once the Defence Ministry completes the process of releasing 45 Mhz of spectrum. According to DoT officials, a new policy will have to be put in place because by then spectrum will have to be allotted for 3G services.



AIDS to impact GDP : A joint study by the National Aids Control Organisation (Naco), United Nations Development Programme and the National Council for Applied Economic Research estimates that AIDS could lower India's real GDP growth rate by as much as 0.9 percentage point. The growth of per capita income would, in turn be depressed by 0.56%.



The prevalence of HIV infection, which can lead on to AIDS, is estimated at 0.9% of the adult population (5.2 million at the end of 2005). The study estimates that the number could increase rapidly over the next one and a half decades, reaching 20 million-25 million as early as in 2010. This would hurt growth in a variety of ways. It would, to begin with, reduce the supply of labour below what it would be without AIDS. Additionally, labour productivity as well as total factor productivity would be hurt. Savings of households and of the government would come down, as expenditure on treating HIV-AIDS mounts, both at individual and governmental levels. Household incomes would come down for all groups, but most sharply for rural non-agricultural self employed., followed by rural agricultural labour, rural non-agricultural labour, rural agricultural self-employed and urban casual labour. These are all unskilled labour providers, the group worst hit by HIV epidemic.

Tourism, the second-largest employer of unskilled workers, stands to be the sector most affected.

Maharashtra plans on SEZ : Maharashtra is aiming to attract investment to the tune of Rs 60,000-70,000 crore from its 11 special economic zone (SEZ) projects, which have been ratified by the Centre. Under the Maharashtra Industrial Development Corporation (MIDC), the nodal agency for developing the SEZs, the State has sought permission for a total of 48 SEZs, of which 11 have been cleared and four are expected to receive the nod soon.





Bengal policy for SEZs : The West Bengal Government is expected to formulate a policy on multi-product SEZs requiring over 2,500 acres by next week. The policy will aim at optimum use of agricultural land for industries. The SEZs are also expected to play a major role in enhancing the rate of investments from the existing Rs 2,000-2,500 crore a year to Rs. 4,000-4,500 crore a year, during the next five years.



9,000 wagons for Railways : Indian Railways plans to finalise its order for 9,000 wagons soon. The wagon orders are for the public sector units and private wagon manufacturers in the country. The Railways is trying to get physical delivery of 10,200 wagons in the current financial year, which, it expects, would be met by a mix of its outstanding orders and present order.



Wheat prices declining : Wheat prices have declined and there are enough buffer stocks to meet demand, Farm Minister Sharad Pawar said. Allaying fears that wheat pries would shoot up due to a dip production, he said : “There is no problem of stock availability and the prices of wheat are now stable.”



Wool technology mission : In a bid to boost wool production, the government is planning to set up a Wool Technology Mission. With export earnings of Rs 4,522 crore in 2004-05, woolen products contribute substantially to textile exports.



Curb electronic imports : Assocham has asked the Government to curb excessive imports in the electronics industry by considerably raising customs duty. It has also asked the Government to do away with high internal tax regime for the industry to allow it to grow at about 30 per cent annually and to take its size to Rs 7,00,000 crore by 2015 from the current level of around Rs 50,000 crore. The industry could create seven million jobs directly and 14 million indirectly provided the large demand could be met through local production. As of now, only about half the demand of around Rs 1,00,000 crore in the electronics component sector in met by domestic production, the paper notes.



India, France sign MoU in IP : India and France have signed a memorandum of understanding for cooperation in the field of intellectual property. The MoU will further the commitments made by the two Governments for cooperation in this field during the visit of the French President Jacques Chirac to India in February this year. The MoU was singed between Ashwani Kumar, Minister of State for Industry of India, and Francois Loos, French Minister of Industry, in Paris on July 15.





Ranbaxy pact for Canadian market : India’s biggest drugmaker Ranbaxy Laboratories has said it had entered into a licensing and supply agreement with Janssen-Ortho Inc for a genetic version of Risperidone compressed tablets in the Canadian market. The agreement was signed between Ranbaxy’s wholly-owned subsidiary, Ranbaxy Pharmaceuticals Canada Inc and Janssen-Ortho Inc.



Mittal gets majority stake in Arcelor : Mittal Steel, the biggest steel producer in the world has announced that it had acquired at least 50 per cent of Arcelor shares, the minimum amount Mittal has set for the takeover to go ahead. “It has determined that, on a preliminary basis and based on statements made by financial intermediaries, the minimum tender condition of the offer – 50 per cent of Arcelor outstanding shares on a fully diluted basis as set forth in the offer prospectus – has been met,” Mittal said in a statement. Mittal has said that the merger between the two steel giants would go ahead if it got 50 per cent or more of Arcelor shares.



TCS to recruit 4,000 foreign nationals : Tata Consultancy Services (TCS) will recruit 4,000 foreign nationals in the forthcoming fiscal, including 800 people in the US and 1,000 in Latin America and the rest in China and Eastern Europe. This is a deliberate strategy on the part of the company to build a diversified workforce. Foreign nationals now form 7.5 per cent of the company’s workforce.



Pak may import more : Pakistan’s Commerce Ministry has proposed allowing 100 more products to be imported from India to strengthen trade ties between the two countries, the Minister, Humayun Akhtar, said. The Government’s economic coordination committee will take a decision on allowing more imports, he said. “We hope the blasts in Mumbai won’t affect the trade between the two countries,” Akhtar said. Pakistan presently allows 782 products to be imported from India, which doesn’t restrict imports from its neighbour.



Norway grants $ 80m for rural health : Norway Government has announced a $80 million grant to India to reduce infant mortality rate. The announcement follows as part of the discussions held on bilateral cooperation between the Prime Ministers of the two countries at New Delhi in December 2005. Concerned over the high rate of child mortality rate, the Governments of the two countries have launched a multi-level partnership to accelerate the pace of the Millennium Development Goals under the National Rural Health Mission. The initiative will involve international organisation such as UNICEF and WHO. The initiative will focus on Uttar Pradesh, Rajasthan, Madhya Pradesh, Bihar and Orissa, which have the highest number of child deaths.

Ford to make hydrogen-run vehicles : Ford Motor Co. became the first automaker to begin production of a commercially-viable hydrogen engine which emits little but clean water vapour from the tailpipe. The hydrogen-powered internal combustion engines are destined for shuttle buses and will be ready for delivery later this year, Ford spokesman Nick Twork said.

Gold, silver plummet : Both precious metals resumed sharply lower on the bullion market here today on fresh selling from stockists in view of a fall in overseas markets. Standard gold (99.5 purity) dropped by Rs 175 per 10 gm to open at Rs 9,895 from the overnight closing level of Rs 10,070. Pure gold (99.9 purity) also fell by Rs 180 per 10 gm to Rs 9,940 from Rs 10,120. Silver ready (.999 fineness) declined sharply by Rs 475 per kilo to Rs 17,820 from Rs 18,295 yesterday. In New York, gold futures moved down sharply on profit- taking, traders and analysts said. August gold settled down by $16.10 to $651.90 an ounce on the Comex division of the New York Mercantile Exchange.

Hafed to set up IOC petrol stations : Hafed will set up IOC petrol pumps in the state to provide an adequate supply of diesel to farmers. These pumps will initially be located at Ladwa, Taraori and Radaur, the main agricultural belt of Haryana. Hafed also plans to introduce various IT components for e-governance and it would also provide web-enabled services to farmers and customers. This was disclosed at a meeting chaired by Chief Minister Bhupinder Singh Hooda here today. Hafed has floated a special warehousing scheme to enable farmers sell their produce where the market rate would be more remunerative. Under this scheme the member farmers would be financed to the extent of 80 per cent of the cost of their produce at an interest rate of 8 per cent per annum on the basis of warehouse receipts. Hafed has also decided to upgrade the Rohtak Cattlefeed Plant to improve the quality of the feed and make it a brand throughout the country.