Economic snapshot

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ECONOMIC SNAPSHOT Business sentiment in Asia is at an all-time high with India the most upbeat, followed by the Philippines and China, according to Grant Thornton International's new survey on business optimism/pessimism that polled 7,200 leaders of private firms in 32 countries. The survey found Asians the most confident in the world as they looked ahead to the next 12 months. Asian countries took the top four spots on the list. The indicator covers 81% global GDP. India was the most upbeat with 97% of the respondents optimistic. The Philippines followed with 88%, China was third at 85% and Singapore fourth with 84%. Ireland, the Netherlands, South Africa, Hong Kong, Sweden and Argentina filled the remaining top 10 spots with the global average at 45%. The National Council of Applied Economic Research (NCAER) has revised its forecast for the country's gross domestic product growth for 2006-07 to 8.44 per cent, from the 8.13 per cent that it had forecasted in October last year. NCAER has also projected a lower fiscal deficit of 3.63 per cent for the current fiscal, against its October projection of 3.71 per cent. Further, It has projected a decline in the current account deficit to 1.93 per cent, from the earlier forecast of 2.11 per cent for 2006-07. The Reserve Bank's Industrial Outlook Survey points to optimism on the growth outlook. The business expectations index for October-December, 2006 was higher than in the preceding quarter but marginally lower than in the corresponding quarter a year ago. The expectations index for January-March, 2007 is higher than in the preceding quarter as also in the corresponding quarter a year ago. A positive outlook for demand conditions continues with increased optimism reflected in order books, production, employment and profit margins. The assessment about growth of exports and imports indicates a marginally lower level of confidence. Expectations of increase in selling prices have moderated somewhat in relation to the preceding quarter. The International Monetary Fund (IMF) has given India's economic policies a thumbs-up and has projected the gross domestic product to grow at 8.2% in 2006-07. The Indian economy grew at 8.9% and 9.2% in the April-June and July-September quarters, respectively. According to the IMF, prospects looked good for a sustained and robust expansion of the economy in the medium term. The IMF has estimated India's per capital real income to double in 13 years if India grew at an estimated 7.5% a year. The four main challenges, it said, were: achieving fiscal sustainability while financing development, managing price and financial stability, fostering a deeper and broader financial sector and promoting more job-intensive, inclusive growth. According to the IMF robust economic growth is pushing Indian companies to integrate with global economies. Growing corporate profits are funding ambitious expansions abroad, which are aimed at achieving scale, competitiveness, technology and access to market. According to the IMF, in the first three quarters of 2006-07, Indian companies spent about $7.2 billion buying overseas companies. According to the global research firm Credit Suisse, India is set to surpass China as the fastest-growing economy in Asia this year on the back of increasing consumer demand and public investment in infrastructure. In its December forecast, the firm upgraded India's economic growth rate to 9.5 per cent in 2006 from 8.5 per cent projected in September last year. Further, according to Credit Suisse the economy would grow by 10 per cent in 2007 and 10.5 per cent rate in 2008. India has gate-crashed into the list of the top 20 wealth markets in the world. India and Russia - ranked 19 and 20, respectively, in the Global Wealth 2006 list - are the latest entrants among Bric (Brazil, Russia, India and China) nations to make it to the cut this year. The report says that the BRIC countries are expected to grow nearly twice as fast as the global average at 10.6% to touch $7.1 trillion and that India will show the fastest growth at 13.3% to touch $1 trillion by 2010-end. Exports grew by 39.5 per cent in dollar terms during April-November, 2006 whereas the imports increased by 36.5 per cent in April-November, 2006. Forex reserves (excluding Gold and SDRs) stood at $170.19 billion at the end of December 2006. Rupee appreciated against US Dollar and Japanese Yen and depreciated against Pound Sterling and Euro in December 2006. The annual inflation rate in terms of WPI (Base 1993-94=100) was 5.58 per cent for the week ended December 30, 2006 as compared with 4.56 per cent a year ago. This rate was contributed by an increase of 9.09 per cent in Primary Articles, 3.47 per cent increase in Fuel, Power, Lights and Lubricants and 5.04 per cent increase in Manufactured Products as against an increase of 5.13 per cent, 7.95 per cent and 3.05 per cent respectively on the corresponding date of last year. The number of foreign institutional investors (FIIs) registered with the Securities and Exchange Board of India (SEBI) has crossed the 1,000 mark. The total number of FIIs having their offices in India has now increased to 1,030. In the beginning of calendar year 2006, the figure was 813. As many as 217 new FIIs opened their offices in India during the calendar year 2006. This is the highest number of registrations by FIIs in a year till date. The previous highest was 209 in 2005. Industry Industrial activity has picked up in an environment of favourable demand conditions, strong corporate profitability and overall business optimism. The index of industrial production (IIP) rose by 10.6 per cent during April-November 2006 as against 8.3 per cent a year ago. Manufacturing contributed nearly 91.2 per cent of this growth, expanding by 11.5 per cent (9.4 per cent a year ago). Manufacturing activity was led by basic metals and alloys, non-metallic mineral products, machinery and transport equipment, basic chemicals and products and cotton textiles. The strength of investment demand was reflected in an increase of 16.1 per cent in capital goods production, supported by the growth in production of basic goods by 9.3 per cent in intermediate goods by 10.9 per cent and in consumer durable goods by 12.5 per cent In the consumer non-durables segment, production rose by 8.7 per cent. Mining and electricity generation grew by 3.8 per cent and 7.3 per cent, respectively. The six infrastructure industries, comprising 26.7 per cent of the IIP, posted a growth of 7.8 per cent during April-November, 2006 as against 5.2 per cent a year ago. Petroleum refinery products and cement production registered double-digit growth, production of crude petroleum recorded a turnaround and the growth of electricity production was higher than a year ago. On the other hand, the growth of coal and finished steel decelerated from the pace of expansion last year. Industrial production surged 14.4% in November 2006 -- the fastest growth in more than a decade. The Index of Industrial Production (IIP) figures released by the government show that growth was primarily driven by manufacturing, which soared 15.7% in November. A rebound of the mining sector, which swelled 7% in November 2006 against a negative 2.1% in November 2005, also played its part. Electricity, meanwhile, grew 8.7% in November 2006. It has been yet another sizzling quarter for the Indian IT industry. Revenues of TCS, Wipro, Infosys and HCL Technologies together grew by 45 per cent on y-o-y basis. The ebullient results of the software biggies in the last quarter have triggered a buzz that the target of $60 billion worth of software exports are within the reach of the economy. Infosys' net income rose 52% to $221 million in the quarter ended December 31. Tata Consultancy Services (TCS) beat market expectations to become the first Indian IT company to clock over $1 billion in revenues in a single quarter even as it posted 44.9 per cent y-o-y increase in net profit of US$ 252.93 million (Rs 1,116 crore) (Indian GAAP) for the quarter ended December 31, 2006. Total revenues increased by 40.72 per cent to US$ 1.10 billion (Rs 4,873 crore) in the same period. Its net income grew 42.75 per cent to touch US$ 250.40 million (Rs 1,104.70 crore HCL Technologies posted a net profit of US$ 64.8 million (Rs 286 crore) for the second quarter ended December 31, 2006, a 58 per cent rise from the corresponding period last year. Continuing the robust performance by Indian IT majors, Wipro Ltd has reported a 41 per cent increase in net profit and a 45 per cent top-line growth for the third quarter ended December 31, 2006, over the corresponding period last year. Riding on the back of its strong Asia-Pacific business, Wipro Ltd's third-quarter revenues mark a 9.3 per cent growth in net profit and 12.21 per cent growth in revenue over the trailing quarter. Siemens on Thursday posted a two-fold increase in net profit after tax at US$ 22.23 million (Rs 98.07 crore) for the quarter ended December 31, from US$ 11.11 million (Rs 49.01 crore) in the year-ago period. The pharmaceutical industry also fared well in the quarter ended December 2006. Pharma major, Nicholas Piramal India posted 82.39 per cent increase in profit after tax at US$ 9.82 million (Rs 43.30 crore) for the quarter ended December 31, as compared to US$ 5.38 million (Rs 23.74 crore) for the same quarter last year. The total income (net of excise) increased 14.20 per cent to US$ 92.5 million (Rs 408.04 crore) for the quarter ended December 31, from US$ 81 million (Rs 357.30 crore) for the corresponding quarter a year ago, the company informed the Bombay Stock Exchange. Ranbaxy Laboratories reported that its fourth quarter net profit more than doubled to US$ 42.07 million (Rs 185.59 crore). This implies a rise of 166 per cent over the net profit of US$ 15.78 billion (Rs 69.6 crore) in the corresponding October-December quarter last fiscal. Biocon recorded a net profit of US$ 10.77 million (Rs 47.51 crore) for the third quarter ended December 2006, an increase of 44.90 per cent as compared to Rs 32.79 crore shown in the same period previous fiscal. Net sales for the quarter this year was higher at US$ US$ 48.53 million (Rs 2 14.08 crore) against US$ 39.08 million (Rs 172.40 crore) in the previous year quarter. Fertilizer production rose by 10.6 per cent in October 2006 as against a decline of 6.8 per cent a year ago. Production witnessed a sharp pick-up from September, prior to the onset of rabi sowing. Demand for fertilizers remained quite strong as production witnessed a 5.9 per cent increase during April-October 2006. In November 2006, finished steel production was up by nine per cent over and above 15 per cent growth recorded a year ago. Strong demand for steel was forthcoming from almost all the user industries. Construction sector was booming and the automobile sector was witnessing strong double-digit growth. During April-October 2006, capital goods production increased by 15 per cent as compared to 16.9 per cent rise recorded a year ago. The automobile industry registered a total production of 8.2 million vehicles in April-December 2006 and witnessed a production growth of 15.91 percent in April- December 2006 compared to April - December 2005. The automobile industry has registered a total production of 10.9 million vehicles in the period January to December 2006 and witnessed a production growth of 16.22% over 2005. This is up from 14.5% growth witnessed in 2005 over calendar year 2004. India's second largest two-wheeler maker Bajaj Auto Ltd reported a 23.8% growth in Q3 net profit to US$ 78.25 million (Rs 345.19 crore), up from US$ 63.24 million (Rs 278.99 crore) in Q3, 2005-06. During Dec 06, Cement Production was 13.46 Mn.T, registering a growth of 7.94% as compared to 12.47 Mn.T in Dec 05. Cement Despatches grew by 7.64%, from 12.57 Mn.T in Dec 05 to 13.53 Mn.T in Dec 06. Consumer Market According to a survey by AC Nielson, Indians are the world's most optimistic consumers, followed by Norwegians and Danes. While Japanese remain cautious despite their recovering economy, India has set the highest level ever registered in the AC Nielsen Global Consumer Confidence Index with a reading of 137, although Norway was not far behind at 134 and Denmark at 129. Indians, benefiting from a booming economy, have topped the twice-yearly survey since it was introduced in early 2005. In contrast, consumers in Asia's other surging economy, China, scored a much lower 105, although that was above the global average reading of 99. The consumer durables production index recorded a robust increase of 15. 7 per cent in the first half of the fiscal year 2006-07.between May and August 2006, the index grew in the range of 17.5-20 per cent. However, in September, it witnessed some deceleration as it grew by 12.6 per cent. Of the 27 items, which constitute the consumer durables index, production of 12 items went up by more than 20 per cent during the first half of the fiscal 2007. This includes passenger cars, motorcycles, washing machines, refrigerators, two-wheeler tyres and tractor tyres. Production of air conditioners, however, declined. Growth in production of passenger cars decelerated to 11 per cent in September 2006 after growing in the range of 22-27 per cent during the previous three months. The number of telephone subscribers in the country reached 189.93 million in December 2006, from 124 million in December 2005, pushing the tele-density to 17.16 per cent from 11.43 per cent in December 2005. Further, the number of broadband connections reached 2.10 million in December 2006. Total number of phones registered with TRAI stood at 183.5 million cumulatively for the April - November period of 2006. This record achievement in total phones registered could be ascribed to additions in the mobile network every month. Overall teledensity reached 16.60 in November 2006 compared to 16 in the previous month of this year. In November 2006 wireless lines added 6.79 million phones. The landline phone ceased to maintain the growth that existed a year ago. The Automobile Industry registered a total production of 8.2 million vehicles in April-December 2006 and witnessed a production growth of 15.91 percent in April- December 2006 compared to April - December 2005. During the calendar year 2006, the automobile industry has registered a total production of 10.9 million vehicles in the period January to December 2006 and witnessed a production growth of 16.22% over 2005. Agriculture The agriculture ministry is likely to spend an additional US$ 5.67 million (Rs 250 crore) in 2007-08 on farm insurance, over and above the average US$ 147.3 million (Rs 650 crore) spent on the National Agricultural Insurance Scheme (NAIS). The scheme, approved by the finance ministry, is expected to be implemented in 100 pilot districts, based primarily on the suggestions made by a joint expert group. It is likely to be implemented mainly in dry land and drought-prone districts susceptible to farm suicides. Once its performance is evaluated and found efficient, the government plans to extend it to other non-drought-prone districts. The Rs 490 crore Indian seed industry is emerging as an important centre for seed production in the south-east Asian region owing to the availability of a variety of crops growing in a varied range of climatic conditions in the country. According to a Rabobank report, the domestic seed industry has matured over the last couple of years with the introduction and broad acceptance of technologically superior transgenic hybrids of cotton crops. Food grain stocks were 12.38 million tonnes as on October 1, 2006. The Post-Monsoon season rainfall from October l, 2006 to December 31, 2006 was normal/excess in 25 per cent of meteorological sub-divisions. According to the latest figures available from different planting zones, the country's tea production in 11 months of 2006 increased by 29.8 million kg over the same period in 2005, During January-November 2006, totally 909.1 million kg was produced against 879.3 million kg in 2005. In April-December, 2006 India registered a 59.3 per cent rise in onion exports at 884,137 from 555,144 tonne in the same period in 2005. In value terms, April-December exports rose to US$ 164.8 million (Rs 727 crore) from US$ 119.7 million (Rs 528 crore) in the 2005. The export demand is high from Pakistan, Sri Lanka, and other neighbouring countries due to adverse weather in these countries. Capital Market During the current year so far, equity market activity recorded a significant increase in terms of issuances in the domestic primary segment as well as in international stock exchanges. The BSE Sensex (1978-79=100), which had risen from 11,280 in end-March, 2006 to 12,612 on May 10, 2006 before receding to 8,929 on June 14, 2006, was supported in subsequent months by robust macroeconomic fundamentals and high private corporate profitability. The Sensex rallied with intermittent corrections to reach a high of 14,283 on January 25, 2007. The bullish trend in the secondary capital markets continued in December 2006 despite the FIIs turning into net sellers (US$ 814.7 million) in Indian equities after a span of six months. The market cap weighted COSPI posted gains of 0.8 per cent, while the equally weighted COSPI yielded higher returns of 6.4 per cent, implying that the smaller market cap scrips fared better than the larger ones. Mutual funds made net purchases of US$ 368.85 (Rs. 1,627 crore) in Indian equities in December 2006, after remaining net sellers for two consecutive months. In November 2006, mutual funds launched 35 new schemes, which mobilized US$ 2.56 billion (Rs. 11, 277 crore). In addition to that, US$ 39.88 billion (Rs. 1,75,890 crore) were garnered by the existing schemes. Banking Driven by the pick-up in real activity, credit extended by scheduled commercial banks (SCBs) increased by US$ 56.77 billion (16.6 per cent) during the current financial year up to January 5, 2007 as compared with the increase of US$ 44.79 billion (17.1 per cent) in the corresponding period last year. The increase of US$ 542.26 million (Rs.2,392 crore) in food credit was low and comparable to the increase of US$ 699.2 million (Rs.3,084 crore) in the previous year. Non-food credit registered an increase of US$ 56.22 billion (16.9 per cent) as compared with an increase of US$ 44.09 billion (17.5 per cent) in the corresponding period of 2005-06. Banks' investments in shares, bonds/debentures and commercial paper increased by 0.6 per cent during the current financial year up to January 5, 2007 as against a decline of 14.8 per cent in the corresponding period last year. SCBs' investments in mutual funds also increased by US$ 471.5 million (Rs.2,080 crore) as against a decline of US$ 1.37 billion (Rs.6,051 crore) in the corresponding period of the previous year. The total flow of resources from SCBs to the commercial sector increased by 16.1 per cent during the current financial year so far as compared with the increase of 15.0 per cent in the corresponding period of the previous year. The year-on-year growth in total resource flow was 29.5 per cent, over and above the growth of 27.7 per cent a year ago. On a year-on-year basis, the growth in money supply (M3) at 20.4 per cent on January 5, 2007 was higher than 16.0 per cent a year ago and above the projected trajectory of 15.0 per cent indicated in the Annual Policy Statement for 2006-07. During the current financial year so far, M3 increased 11.9 per cent which was higher than the increase of 8.8 per cent in the corresponding period of the previous year. Net foreign exchange assets (NFA) of banking sector (up to December 22, 2006) registered an increase of 14.5 per cent as compared with 6.1 per cent in the same period last year. The annual growth rate of NFA, as on December 22, 2006, was 21.0 per cent as against 13.2 per cent on the corresponding date of last year. Non-Food credit during the financial year so far (up to November 10, 2006), registered an increase of 11.4 per cent as compared with an increase of 13.4 per cent during the same period of the last year. The year-on-year growth rate of non-food credit was 29.6 per cent as compared with 31.6 per cent on the corresponding date of last year. The government has approved an ordinance giving more flexibility to the Reserve Bank of India (RBI) to fix the Statutory Liquidity Ratio (SLR). The central bank will now have complete freedom in fixing the floor and ceiling levels of the Statutory Liquidity Ratio (SLR). The RBI hiked the CRR by 50 basis points to 5.5 per cent in two stages on 23 December 2006 and 6 January 2007. Bank credit expanded by 29.1 per cent as on 8 December 2006, the growth in non-food credit being 30.4 per cent. Infrastructure During April-November 2006-07, six core-infrastructure industries registered a growth of 7.8%(provisional) as against 5.2% during the corresponding period of the previous year. Crude petroleum production (weight of 4.17% in the IIP) registered a growth of 10.1% (provisional) in November 2006 compared to a negative growth rate of 8.5% in November 2005. The Crude petroleum production registered a growth of 5.5% (provisional) during April-November 2006-07 compared to (-) 5.7% during the same period of 2005-06. Petroleum refinery production (weight of 2.00% in the IIP) registered a growth of 16.4% (provisional) in November 2006 compared to growth of 1.5% in November 2005. The Petroleum refinery production registered a growth of 13.5% (provisional) during April-November 2006-07 compared to (-) 0.6% during the same period of 2005-06. Coal production (weight of 3.22% in the IIP) registered a growth of 4.9% (provisional) in November 2006 compared to a growth rate 6.9% in November 2005. Coal production grew by 4.8% (provisional) during April-November 2006-07 compared to an increase of 6.1% during the same period of 2005-06. Electricity generation (weight of 10.17% in the IIP) registered a growth of 8.8% (provisional) in November 2006 compared to a growth rate 3.4% in November 2005. Electricity generation grew by 7.3% (provisional) during April-November 2006-07 compared to an increase of 4.9% during the same period of 2005-06. Cement production (weight of 1.99% in the IIP) registered a growth of 11.5% (provisional) in November 2006 compared to 7.8% in November 2005. Cement Production grew by 10.2% (provisional) during April-November 2006-07 compared to an increase of 10.6% during the same period of 2005-06. . Finished (carbon) Steel production (weight of 5.13% in the IIP) registered a growth of 9.0% (provisional) in November 2006 compared to 14.8% (estimated) in November 2005. Finished (carbon) Steel production grew by 7.6% (provisional) during April-November 2006-07 compared to an increase of 10.0% during the same period of 2005-06. Railways are all set to sign a partnership agreement with retail majors. It is preparing a draft policy outlining the modalities of partnership with retail players. Mukesh Ambani-owned Reliance Industries (RIL), Kishore Biyani's Future Group, Sunil Mittal's Bharti, Tatas and Adanis are some of the retail players that are at an advance level of talks with the Railways for setting up agri-retail hubs, cold storage houses, multi-purpose warehouses on excess land in cities and villages. Government of India issued Letters of Intent for awarding the first two Ultra Mega Power Projects (UMPPs) of 4000 MW each to the selected successful bidders namely M/s. Globeleq Singapore Pte. Ltd (lead) & M/s. Lanco Infratech Ltd. for Sasan in Madhya Pradesh and M/s. Tata Power Company Ltd. for Mundra UMPP in Gujarat. The process of selection of successful developer for other UMPPs namely, Krishnapatnam (A.P) and Tiliaya (Jharkhand) is expected to be completed by April 2007. The Ministry of Petroleum and Natural Gas has announced the Policy for Development of Natural Gas Pipelines and City or Local Natural Gas Distribution Networks. The objective of the policy is to promote investment from public as well as private sector in natural gas pipelines and city & local natural gas distribution networks. The policy aims to facilitate open access for all players to the pipeline network on a non-discriminatory basis and to promote competition among entities, thereby avoiding any abuse of the dominant position by any entity. The main thrust of the policy is to secure consumer interest, both in terms of gas availability and reasonable tariff. It is envisaged that the policy would facilitate the laying of gas pipelines and city gas distribution networks, which would help in making available natural gas, an environment-friendly fuel, to different parts of the country and in making this fuel available to households across the country. The civil aviation ministry has drawn up plans to modernize 35 non-metro airports. These airports are located at -Ahmedabad, Amritsar, Agartala, Agra, Agatti, Aurangabad, Bhopal, Bhubneshwar, chandigarh, Dehradun, Dimapur, Guwahati, Goa, Imphal, Jammu, Jaipur, Khajuraho, Nagpur, Madurai, Mangalore, Patna, Port Blair, Thiruvananthapuram, Pune, Rajkot, ranchi, Raipur, Udaipur, Lucknow, trichi, Coimbatore, and Varanasi. The modernization plan consists of developing the "air-side" and the "city -side" of these airports. The total cost for modernization of these airports is expected to be around US$ 1.59 billion (Rs. 7000 crore), out of which US$ 340 million (Rs. 1500 crore) will be spent on city-side development. The development of the 35 non-metro airports across the country is likely to be completed by the year 2010-2011. The government has already started development of air-side of 12 non-metro airports. The finance ministry is considering a proposal to use part of India's $177-billion forex reserves for infrastructure projects, by floating a special purpose vehicle (SPV) called India Investment Corporation (IIC) with a corpus of $10 billion. The SPV, which will be formed to fund long-term infrastructure projects, will invest in corporate and infrastructure bonds. Apart from ensuring fund flow to India's creaking infrastructure, the move is also expected to ensure a better rate of return for RBI, which normally invest India's forex kitty in overseas treasury papers. Special Economic Zones SEZs have managed to attract a whooping US$ 2.70 billion (Rs. 11,900 crore) investment in the eleven months since the SEZ rules were notified. As many as 63 SEZs have been notified since February 2006 and 15,812 additional jobs have been created. According to the estimates by the Ministry of Commerce and Industry, total investment in SEZs is likely to go up to Rs. 58,000 crore and employment generation increase to 8.9 lakh by 2009 when most notified SEZs will start operating and production in the operational ones will gather momentum. About 60 per cent of the notified SEZs are in IT or the IT enabled services sectors. However, a number of multi-product SEZs and sector specific SEZs in the areas of pharmaceuticals, biotechnology, chemicals and petrochemicals, textiles, automobiles and components, electronics and engineering products have also been notified. The SEZ success stories of 2006 include the Nokia SEZ in Tamil Nadu that commenced production with an investment of $100 million providing direct employment to 2,800 people and indirect employment to 10,000 people; the Adidas Group's Apache SEZ in Andhra Pradesh that started construction activities with an investment of $50 million providing employment to 25,000 people; Flextronics SEZ in Tamil Nadu; Quark city in Chandigarh expected to attract FDI of $0.5 billion, providing employment to 35,000 people; and Motorola and Faxconn's investment of $200 million in electronic hardware manufacturing units in the State Industries Promotion Corporation of Tamil Nadu (Sipcot) SEZ.

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