Indian Economy - News & Updates - Archive

[Contrarian]

Budget googly likely to stump developers

MUMBAI: A small clarification to the definition of a 'developer' of infrastructure projects, industrial parks and SEZ made in the 2007-08 budget threatens to pull the rug from under the feet of infrastructure companies taking sub-contracting work.

The explanation which redefines a 'developer'from April 1, 2000, says that infrastructure companies taking on sub-contracting work will not be entitled to the ten-year tax benefit under section 80-IA of the Income-Tax Act.

"The legislative intent behind insertion of the explanation appears to deny the tax benefit to a sub-contractor who is entering into an agreement with the main developer of the project," said Pinakin D Desai, a Mumbai-based Chartered Accountant.

The change is likely to impact firms like IVRCL, Nagarjuna Constructions, Patel Engineering, L&T and HCC, which undertake sub-contracted work.

Companies that have not made adequate provisions in past years will take a bigger hit because the change is with retrospective effect from 1999-2000, which means they will have to cough up tax for the past six-seven years.

Under section 80-IA of the I-T Act, a developer who is engaged in development of infrastructure facilities, gets tax relief.

The benefit was introduced to encourage construction of infrastructure such as highways, ports and rail transport systems.

"The purpose of the benefit has been for encouraging private sector participation by way of investment in development of infrastructure sector and not for persons who merely execute civil construction work or any other works contract," says the budget.

Tax experts point out that this explanation to the definition of the 'developer'would have been prompted by several decisions before the tax tribunals, including a recent one on Patel Engineering wherein the company was granted tax benefit even though it was a sub-contractor.

Basically, the Income Tax Appellate Tribunal took the view that the company should be given the benefits as it contributed to the infrastructure project right from the conception stage to the final execution. The finance ministry thought that it was a loophole that needed to be plugged.

 

[Contrarian]

PC hints more steps to curb inflation

NEW DELHI: Finance Minister P Chidambaram expects interest rates to moderate once the current inflation level declines and made it clear on Saturday that the government was ready to take further fiscal, monetary and supply side steps to curb inflation.

"Interest rate is a function of the monetary policy adopted by the RBI. When there is tightening of the monetary policy interest rates will also go up," he said in an interview.

In the last one year the Cash Reserve Ratio (CRR) and Repo rate have been revised four times in order to tighten the monetary policy, Chidambaram said. "Once inflation moderates and the RBI adopts a more accommodative policy, the interest rates will also decline. Interest rate is directly linked to inflation."

Asked if inflation was a matter of concern, he said "it is. If inflation is a matter of concern, high interest rates is also a matter of concern. If inflation moderates, high interest rates will also moderate." he added.

Asked what steps were being taken to carry out an assault on the price situation, the minister said the government has taken a number of steps on fiscal, monetary and supply side to manage it. "We will always be ready to take further fiscal, monetary and supply side steps as and when they become necessary," he said.

When suggested that the finance minister has to bear the brunt of attack politically and otherwise when prices rise, Chidambaram said prices are declining and some more prices will decline once the supply-side management is done.

However, in the long run, he said, various measures undertaken for the agriculture sector would result in ensuring higher production of wheat, rice and other cereals that will lead to improved price situation.

 

[Contrarian]

Germany okays Suzlon's bid

MUMBAI: The German Federal Financial Supervisory Authority (BaFin) has approved Indian wind energy major Suzlon's bid to acquire Hamburg-based REpower Systems AG lock stock and barrel for Euro 1.02 billion at Euro 126 a share.

The all-cash offer is made through Suzlon's overseas company christened Suzlon Windenergie GmbH, incorporated in Germany. Last month Pune-based Suzlon, promoted by Tulsi Tanti, along with Martifer, which owns 25.4% stake in RE Power, has made an offer to acquire the offshore turbine maker. Suzlon will own 75% and remainder by Martifer.

REpower shareholders can now offer their shares to Suzlon Windenergie till April 20, the last day for the offer which will also become the last day for the Areva Group to revise their offer for REpower. Areva had on February 5 offered to acquire REpower. Even as analysts are expecting Areva to make a counter bid, Tanti exhudes confidence of clinching the deal with a 20% higher offer than Areva.

Suzlon, one of the pioneers of wind power in India, had been quietly acquiring various verticals of its business overseas to tap the growing wind energy market. Last year the company acquired Hansen Technologies, which makes turbines, in Europe.

In developed markets, countries have taken a conscious decision to reduce the dependence on fossil fuels to generate energy to lessen the carbon dioxide emissions.
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W00t, go India

 

[Contrarian]

Essar eyes 20% stake in Libyan field

NEW DELHI: The Ruias-controlled Essar group is eyeing a 20% stake in an oil- and gas-bearing field in Libya. If the deal goes through, it will be the third overseas oilfield equity for the company, which is running a 10.5 million tonne greenfield refinery at Vadinar in Gujarat.

"We are talking to Phoenix Libya, a subsidiary of Phoenix AG, for a minimum of 20% stake with rights to increase it to 50%," Essar exploration head S R Agrawal said on Friday.

Essar has stakes in three oil and gas exploration blocks in Madagascar and two in Myanmar and is scouting for opportunities in 12 countries in the Middle-East, Central Asia, South-East Asia and Africa. The company plans to bid for oil and gas blocks in Iran, Papua New Guinea and Libya to expand its overseas portfolio.

Agrawal said the deal for taking stake in proven oil and gas blocks of NC 100 and NC 101 in Libya is likely to be completed by the year-end. Essar plans to produce 150,000 barrels of oil a day from its domestic and overseas fields in the next three years. "We are looking for a presence in Middle East, Central Asia, Africa and the Philippines," he said.

Iran, Agrawal said, has put 17 blocks for bidding and Essar would submit a bid for at least a couple of them by the due date in June. Essar is also aiming to become a major player in the international drilling business. Its subsidiary Essar Oilfields Services Ltd already owns one semi-submersible and eight land rigs.

 

[Contrarian]

Jindal to set up $2.1b steel plant in Bolivia

NEW DELHI: After LN Mittal and Tatas, it's now turn of Jindals to get agreesive in the global steel sector. Jindal Steel and Power Ltd (JSPL), a part of Rs 20,000 crore Jindal Organisation, managed by Navin Jindal, will invest $2.1 billion to set up a 1.7 million tonne integrated steel plant in Bolivia, to produce long products, a 6 million tonne direct reduced iron plant to make sponge iron and a pellet plant.

Towards this end, JSPL has acquired 50% of the 40 billion tonne medium grade iron ores reserve at EL Mutun, world's largest, after inking a deal with Bolivian government. In June 2006, JSPL emerged as winner to exploit the El Mutun reserve. In the last 8 months, JSPL was engaged in negotiation on other clauses, like availability of natural gas at concessional rate.

Finance director of JSPL Sushil Maroo said the entire investment will take place in eight years. He said once the definitive contact is signed and ratified by the Bolivian parliament, the work will start. He added that there would not be any problem in arranging fund. The share price of the company on Friday, however, fell by Rs 8 to Rs 2,343. But, the fall could be also because general bearish sentiment in the market as sensex fell by over 2% (273 points) on Friday.

Bolivian president Evo Morales and Jindal's chief executive Vikrant Gujaral made an announcement to this effect in Bolivia on Friday. Both parties signed preliminary agreements on the tax rate and natural gas prices for the iron and steel project on Friday. They will sign a definitive contract to implement the project within 45 days.

El Mutun has the world's biggest iron-ore reserves of 40 billion tonnes of medium-grade quality.

 

[Contrarian]

India, Nepal set to tap energy ventures

KATHMANDU: Faced with growing demand for energy, neighbours India and Nepal are rushing to tap power ventures with a clutch of energy meets starting on Monday.

The Indian Ministry of External Affairs and federal energy ministry here are hosting a one-day meet in New Delhi Monday to discuss cooperation in the energy sector with the seven members of the South Asian Association for Regional Cooperation (SAARC).

The meet will focus on promoting energy resources renewal, extension of gas pipelines, simplifying energy standards and promoting hydro-power ventures.

On Wednesday, SAARC energy and water resources ministers will meet in the Indian capital for another round of discussions.

Also during the week, the Confederation of Indian Industry (CII) as well as US aid wing USAID will host an energy meet in New Delhi. From Tuesday, Kathmandu too is hosting a two-day seminar on investment in the hydropower sector.

Organised by Nepal National Committee of International Association on Electricity Generation, Transmission and Distribution (Afro-Asian region) and Nepal Electricity Authority, the meet is sponsored by India's Jindal Power Ltd, that is bidding for several hydropower projects in Nepal.

Fourteen Indian companies are in the fray for nascent hydropower projects in Nepal.

On March 24, after the SAARC car rally has flagged off from Cox Bazar in Bangladesh and entered Nepal, the Federation of Nepalese Chambers of Commerce and Industry (FNCCI) is organising a mini meet in Kathmandu on energy efficiency and clean development mechanism.

Currently Nepal, one of the richest countries in the world in terms of hydropower potential, is passing through an acute power crunch with the imposition of a seven-hour daily power cut in the capital.

 

[Contrarian]

Pak delegation to visit J&K to discuss trade

JAMMU: A business delegation from Pakistan-administered Kashmir will visit Jammu and Kashmir March 16 to discuss the possibilities of mutual trade - a sign of the increasing people-to-people contact between the divided parts of Kashmir.

The 26-member delegation of Azad Jammu and Kashmir Chamber of Commerce and Industry, led by its president Zulfiqar Abbasi, will be on a three-day visit here. The group were invited by the Jammu Chamber of Commerce and Industry (JCCI).

Ram Sahai, chairman of JCCI, said their trip would be a "big event in the ongoing process of people-to-people contact between the two countries and especially the people of Jammu and Kashmir".

Sahai said: "The delegation will discuss the prospects of mutual trade, transactions and communication between the two parts of the state to boost the economy."

This will pave the way for the start of trade between the two sides - a move that the governments of India and Pakistan have already agreed to. Two routes across the Line of Control (LoC) have been identified - the Srinagar-Muzzaffarabad road and the Poonch-Rawlakote road.

Pakistan Foreign Minister Khurshid Mehmood Kasuri had discussed the possibility of opening these routes for trade during his recent visit to India.

Chief Minister Ghulam Nabi Azad said he would extend all support to boost trade between the two sides.

"Ties between the two countries are improving. The visit of the delegation from Pakistan administered Kashmir would be a major milestone in our quest for mutual trade and building stakes in our economy."

 

[Contrarian]

Big quest: Indian oil majors aim for Norway

NEW DELHI: In the quest for energy security and to be relevant in the great hydrocarbons game, Indian exploration majors could be headed for Norway next. Oil ministry mandarins confirmed that Indian exploration majors have been asked to examine opportunities in the Scandinavian country.

Norwegian offshore exploration involving North Sea, Norwegian Sea and Barents Sea was the scene of heightened interest in the bidding round of pre-defined areas in 2006. Now the 2007 edition is up for grabs and the Government of India's diplomatic and petroleum ministry officials are sensing an opportunity.

"Our government wants to give the industry access to new prospective acreage," says Norwegian Minister for Petroleum and Energy Odd Roger Enoksen.

In the last round, 48 exploration licences were given for 85 offshore blocks. Out of that, 33 companies that were awarded, as many as eight were new to the country. The 2007 version announced last week includes 13 new blocks and the deadline for the same is Sep 28, 2007.

It is pertinent to mention that no Indian company has ever explored oil or gas in Norwegian offshore areas, but with both public and private sector now scouring the world for assets, there is great interest now.

The top brass of two state-run oil majors, ONGC Videsh - the overseas exploration arm of Oil and Natural Gas Corp - and Oil India Ltd have been asked to study and participate in Norway's awards in pre-defined areas (APA).

Late last month, the Norwegian cabinet cleared the APA 2006. There is large potential in proving new, smaller resources close to existing infrastructure in the mature areas of the North Sea, the Norwegian Sea and the Barents Sea, industry experts said.

The Norwegian government wants to develop Barents Sea as a petroleum province and prioritise an expansion in this Sea, they added.

It is believed that value creation is a central issue in the Norwegian oil and gas policy. Private sector Indian companies have evinced interest in bidding for these assets. This is a good example of the Indian government's calibrated plan to indulge in economic diplomacy to counter the overpowering presence of Chinese oil majors around the world.

The great oil hunt has seen China's economic and military diplomacy best the Indians time and again in Africa and Central Asia. India and China have been jousting over oil and gas assets all across the globe, with India more often than not finishing second best.

India has invested billions of dollars in acquiring oil and gas assets in diverse geographies like Russia (Sakhalin) to Sudan and Libya to Vietnam and even far away Ecuador, Venezuela and Cuba.

But ONGC Videsh, India's oil acquiring arm has been wrong-footed by Chinese majors like CNOOC and Sinopec. In Angola, for instance, China provided not just financial aid, but clinched the deal with a gargantuan military package even as OVL waited for cabinet approval.

Almost parallel, the petroleum ministry in conjunction with the Indian Trade Promotion Organisation has asked Indian exploration majors to participate in the India Show that begins in Sao Paulo, Brazil's commercial capital, on March 6 to showcase the capabilities of their companies in the petroleum sector.

 

[Contrarian]

Govt's new plan to mint money

NEW DELHI: High metal prices may end up generating a few extra bucks for the government mints.

With the value of metals exceeding the currency value in most coins, the government has decided to allow the mints to melt some of the coins — particularly the Rs 2 coins — and allow them to launch coins with cheaper metals.

So, the copper-nickel coins — made from an alloy of copper and nickel — will soon make way for ferro steel coins. And, the melted metals will be sold in phases, which officials said, will generate profits for the mints that were corporatised last year since the metal was bought years ago when international commodity prices were much lower than what they are at present.

With the value of the metal exceeding the value of the currency, a parallel market of sorts is in place where coins which are collected from the market are melted by illegal operators and the metal is sold. Officials said the initiative will not only put an end to such practices but also result in the entry of new metals, which was an important element of the currency management strategy.

For the mints, it isn't extra bucks from just the coins that are in circulation at present. Recently, the government allowed the mint in Kolkata to melt old silver coins (with denominations of four annas, eight annas and Re one) and sell the metal.

Officials said the sale deal has already been clinched and the last few consignments are on their way out, though they did not disclose how much additional revenue the mints managed to generate.

Profits from metals apart, the move also means that the mints would be able to use their idle capacity since the government has not been purchasing coins of late. "Over the last few years, there has been sufficient availability of coins so we bought coins only to keep the mints going," an official said.

But during the current financial year, the government will purchase coins worth Rs 100 crore, for which the finance minister made a provision in the revised estimates for 2006-07, and will follow it up with purchases worth another Rs 250 crore during 2007-08.

 

[Contrarian]

India to pip US in cell subscribers

NEW DELHI: Here's something to blow away India's Budget blues. After crossing the 200 million telephone subscriber mark, the telecom industry is hurtling towards another major milestone. The country is now set to pip Russia to boast of the third largest number of mobile subscribers in the world in March 2007.

And, toppling America's No 2 position is just another 20 months away.

Analysis by ToI reveals that at its current pace of growth, India is poised to have the second largest mobile subscriber base before the close of 2008, displacing US, which will cross the 250 million mark before December.

According to the present ranking, China (450 million) has the largest number of mobile subscribers, followed by US (235 million), Russia (154 million) and India (148 million). This is set to change.

This is the result of the progressive policies followed by the UPA government. "We hope to reach 250 million subscribers by year-end and 500 million by 2010," says telecom minister Dayanidhi Maran.

Propelled by aggressive growth rates, India is poised to cross the 160 million cellular mobile mark (CDMA and GSM) to surpass Russia this month. Till January 2007, Russia had a lead of about 6 million subscribers over India.

In March, China, which added an average of 5.5 million phones per month in the last six months, will cross 460 million mobiles, retaining its leadership. US, which added 1.9 million subscribers/month will touch 239 million subscribers, while Russia, which added 2.5 million subscribers/month will reach 159 million.

While India's absolute growth is mouthwatering, its mobile teledensity or mobile phones per 100 presents a somewhat different picture. By 2006-07, China will have 35% mobile teledensity, US will touch 79%, Russia 112% (more than one mobile phone per person) and India 15% (one of every 7 Indians will own a mobile phone).

For investors, a low teledensity represents an opportunity for growth. Indias mobile telephony is expected to reach 500 million mark by 2010. The country has been blazing the telecom trail since 2004, will add more phones every month from 2008 than it did in the first 45 years since Independence — a statistic that stands tall in otherwise beleagured infrastructure reforms agenda.
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Cheers man!

 

[Contrarian]

Inflation eases to 6.05% as fuels become cheaper

NEW DELHI: Inflation eased to 6.05% during the week ended February 17, influenced by cheaper auto fuels, essential food products and some manufactured goods.

Though wholesale prices-based inflation moderated quite a bit during the week, it was still way above the 5.5% level desired by the Reserve Bank for this fiscal.

Inflation had stood at 6.63% for the previous week and just 4.13% in the year-ago period under review.

The first official data, released after presentation of the Budget in Parliament, comes as a respite to the government, whose annual financial bill focused mainly on containing the price line. However, impact of steps announced in the Budget to tame inflation can be known only in the coming weeks.

Inflation fell mainly due to cut in prices of petrol by Rs two a litre and diesel by Re one per litre on February 15. Its direct effect was evident as the category of fuel, power, light and lubricants has 14.23% weight in overall inflation index.

Among food products, vegetable, fruits, pulses, sugar, khandsari, 'gur', edible oils, egg, meat and fish declined.

Mineral oil among fuel items also fell, as did some manufactured items like zinc.

RBI had also announced measures to tighten money supply by increasing short term lending rate, repo and increasing
the requirement for banks to keep cash with it.

 

[Contrarian]

US business mounts jumbo mission to India

WASHINGTON: A jumbo-sized 38-company US business mission, including nuclear power firms, high technology contractors and equipment suppliers will visit India from March 5-9 to prepare a roadmap for "future engagement".

Led by the US-India Business Council (USIBC), comprising top 230 US companies with investment interests in India joined by a dozen top Indian global companies, the four-city visit marks the first anniversary of president George Bush's path-breaking trip to India.

USIBC "is pleased to accompany America's finest companies to India, where we can demonstrate our desire to participate in the India growth story across every sector. We are here to take stock of the progress made thus far and chalk the roadmap for our future engagement," Ron Somers, president of USIBC, said.

The mission will attend a US-India Economic Summit organised by CII in New Delhi Mar 6 to take stock of the progress achieved in the US-India Strategic Partnership over the last year and meet government leaders and captains of Indian Industry.

The nuclear power companies and high technology contractors will then peel off from the USIBC Executive Mission and head to Mumbai to meet with the Nuclear Power Corporation of India and the Indian private sector to discuss collaborations and opportunities in India's nuclear power industry.

Investing across all sectors of the Indian economy, the mission will also travel to Kolkata to meet West Bengal government and UPA coalition leadership Mar 7. This visit will mark USIBC's first foray into West Bengal in ten years. CII will organise a conference in Kolkata, highlighting the "View from the East: Opportunities and Promise."

The mission will travel to Chennai to meet Tamil Nadu government leaders and captains of south Indian industry to learn more about opportunities in India's infrastructure and manufacturing sector.

The USIBC mission will be co-led by General Dan Christman, and AMEX's Tom Schick, member of the USIBC's Executive Committee.

Companies that will be represented on the mission include Best Buy, Parsons Brinkerhoff, The Wire Group, Amex, AIG, Cargill, Max New York Life, Dow Chemicals, Exceed International, Lighthouse Funds, Emergent Biosolutions, The Chatterjee Group, eFunds, General Electric, Westinghouse, Edlow Corporation, US Enrichment Corporation, Bechtel, Cognizant, ITT and PSEG.

Formed in 1975, USIBC hosts Indian government officials and business leaders visiting US and conducts Executive Missions to India to discuss economic issues important to industry, and provides briefings to US government officials in support of the growing Indo-US strategic partnership.

 

[Contrarian]

India sees highest salary rise in Asia-Pacific

BANGALORE: Indian enterprises have increased salaries by an average of 14% in 2006, the highest increase in the Asia Pacific region.

During the same period, companies in other key geographies like China and the Philippines increased salaries only by 8%, while in Korea it was 7%, says a Pan Asia survey on "Compensation Trends" conducted by Omam Consultants, a management consulting and staffing outfit. The salaries for management staff in India was up by an average of 16%, again much higher than that in other countries of the region.

Presenting the findings of the survey at a seminar on "Retention — Biggest Business Challenge", organised by Bangalore Chamber of Industry & Commerce (BCIC) here on Friday, Omam Consultants director Rajeeva Kumar said during the period, the banking sector accounted for the highest increase in variable pay at 24%, up from 13% in the previous year, followed by IT sector 18% (13%), manufacturing 16% (10%), FMCG 18% (14%).

"Variable pay factor was introduced in 1999-2000. In 2001, the average ratio between fixed and variable was 87:13, in 2006 it changed to 86:14. It seems to have sort of stabilised now," Kumar said.

 

[Neo]

BG India consortium finds more oil

NEW DELHI: BG India and consortium partners, Oil and Natural Gas Corp and Reliance Industries Ltd, have found more oil in a field off Gujarat, a newspaper reported on Saturday.

The Economic Times newspaper said the consortium, operating the Panna/Mukta and Tapti fields off the coast of western Gujarat state, had found more oil in the block, which is already producing 45,000 barrels a day.

BG India is the local arm of Britain’s BG “Prospects looked very encouraging, but we cannot disclose any other detail before the same is approved by the DHG (Director General of Hydrocarbons),” the paper quoted an unnamed BG executive as saying.

BG India officials declined comment when contacted by Reuters. But the paper quoted Director General of Hydrocarbons V K Sibal as saying: “There is some discovery in a satellite field for which appraisal would be undertaken.” The paper said industry sources estimated the discovery at about 30 million barrels.

http://www.thenews.com.pk/daily_detail.asp?id=45370

 

[Neo]

March 05, 2007
Economic reforms under cloud

By Anand Kumar

GIVEN the fact that Indian Finance Minister P. Chidambaram was under intense pressure from various quarters — pro-reformers, status quoists, anti-liberalisers, industrialists and business groups, the Left parties, the Right supporters, etc — he did a rather excellent balancing act in his budget proposals, submitted to the Parliament last week.

Unfortunately for Chidambaram, budget-day was preceded by a rather harrowing experience for the Congress, which heads the United Progressive Alliance (UPA) government at the centre. The Congress lost elections in two north Indian states — Punjab and Uttarakhand (earlier known as Uttaranchal) — and many in the party and outside rushed to lay the blame on Chidambaram and his finance ministry.

It was argued that the party lost state elections because of inflation, triggered by the continuing emphasis on economic reforms, and the lack of public spending on projects meant for the welfare of the ‘aam aadmi’ (common man), a new cliché that has been mauled ad nauseam by the Congress.

With elections to India’s most important state — Uttar Pradesh — scheduled for next month, there was no possibility of Chidambaram pursuing further economic reforms. The UPA, it must be remembered, crucially depends on the support of the Left parties for survival; the government headed by Prime Minister Manmohan Singh — the other key reformer in the present dispensation — has very limited room for manoeuvring, as the Leftists are opposed to any further deepening of the reforms.-

And the old socialist warriors in the Congress, who have been opposed to the Singh-Chidambaram duo for many years, have suddenly become active, stonewalling several attempts by reformers in the government.

The finance minister is keen that Parliament, in the ongoing budget session, passes two important bills — the Insurance Laws (Amendment) Bill, raising foreign direct investment (FDI) in the sector to 49 per cent from 26; and the Pension Fund Regulatory and Development Authority bill, throwing open the sector to private and international (with a 26 per cent ceiling) players, and allowing funds to invest up to 50 per cent of their corpus in the stock markets.

It is doubtful whether Parliament would give its approval to these two crucial pieces of legislation in the ongoing session. But what is certain is that the anti-reformers in the Congress have stalled other important measures to liberalise the economy, including opening up the retail sector to FDI, encouraging the setting up of special economic zones (SEZs), allowing international universities to set up campuses in India, and rolling back steps such as allowing futures trading in some commodities.



*****


THE finance minister unveiled his budget with a regressive move to ban (hopefully, temporarily) futures trading in wheat and rice. An expert committee will study the impact of futures trading on essential commodities and give its report within two months, to enable the government to take a decision on the contentious issue.

Ironically, just a day earlier, the annual Economic Survey, presented to Parliament, had found nothing wrong with futures trading, and even Agriculture Minister Sharad Pawar had extended his full backing to it. Many farmers had also lent their support to futures trading, though middlemen and other intermediaries, who were worried about the steep fall in margins in spot trading, were not in favour of it.

The chairman of the Forward Markets Commission, S. Sundareshan, was also opposed to any moves to ban futures trading in commodities. But politically, it has become a hot potato, with many Congressmen of a vintage era, and strong votaries of a dirigiste regime, not yet reconciled to modern realities and the functioning of a market economy.

Futures trading in agricultural commodities is a relatively new concept in India that has proved to be extremely popular. The National Commodities and Derivatives Exchange — in which American finance major Goldman Sachs acquired a stake recently — accounts for 95 per cent of all wheat futures traded in India.

India, which is the second-largest producer of wheat and rice, began importing wheat last year to meet a shortfall in production. Electronic futures trading in commodities has brought about a great deal of transparency, and prevented the distortions of the earlier system. But the powerful lobby of traders and other intermediaries, who have lost significantly, have been opposed to this new platform.

In the past, hoarders have made a killing at times of commodity shortages and when prices soared. But with an institutionalised futures market — even the limited one in India, where international funds are not allowed to trade — the traditional traders have taken a beating.


*****


WITH a global rise in commodity prices, inflation has been a worrying factor in India. The Reserve Bank of India (RBI), the country’s central bank, has been monitoring the price situation, and tweaking interest rates to curb inflation.

However, the Economic Survey that was presented last week was rather critical of the RBI’s monetary policy to contain inflation, which was leading to a hardening of interest rates. The survey said a balance needs to be struck between curbing inflation and maintaining a high pace of growth.

Inflation touched a two-year high of 6.73 per cent last month, while gross domestic product (GDP) growth slowed down to 8.6 per cent in the third quarter (ending December 31, 2006), as against 8.9 per cent and 9.2 per cent in the first and second quarters respectively of the current fiscal.

The agriculture sector continues to slow down the economy, and according to the latest figures released last week, expanded by a mere 1.5 per cent — as against 10.7 per cent by the manufacturing sector and 11.6 per cent by the financial services sector.

According to many Congressmen, one of the main factors leading to the party’s defeat in Punjab and Uttarakhand was inflation. But Chidambaram has been defensive about the sensitive subject. He points out that there was a time — in the heydays of socialism in the 1970s — when the country was reconciled to inflation of 10 and 12 per cent; it had even touched the 22 per cent figure on a couple of occasions.

Growth, however, was at a sedate 3.5 per cent (Hindu rate of growth, as a prominent economist had once dubbed it). According to Chidambaram, these days (when growth has topped eight per cent for the last four years) the ‘tolerance level’ for inflation is around five per cent.

But the recent high of 6.73 per cent is nothing exceptional. Just about three years ago, inflation hovered around the six to eight per cent mark. Even during the late 1990s, there were occasions when inflation peaked at eight per cent.

Chidambaram ensured that deficit targets were on track this year. The revenue deficit has been projected to decline to 1.5 per cent of GDP in financial year 2007-08, as against two per cent in the current fiscal (which ends on March 31).

The fiscal deficit is expected to come down to 3.3 per cent of GDP, from 3.7 per cent this year. The primary deficit (which excludes interest payments) is expected to show a positive of 0.2 per cent of GDP in the new financial year.

The worrying aspect in the budget proposals were the hefty increases in spending on some of the UPA’s pet projects. Total outlay on social sectors has been raised from Rs600 billion to over Rs800 billion. There is massive leakage in the implementation of many of these projects, and the actual beneficiaries fail to get the benefits meant for them.

http://www.dawn.com/2007/03/05/ebr10.htm