Economy Watch

Economy News

Indian Economy Watch as on 19-July-2010.

Inflation

Annual food inflation inched up to 12.81% for the week ended 3rd July while fuel inflation shot up to 14.27%, reflecting the hike in oil prices. In the previous week food inflation was at 12.63% and fuel inflation at 18.02%. While vegetable prices fell by 5.70% year-on year, costlier pulses and cereals kept food inflation higher. Potato became cheaper by nearly 43%, while onion prices were down five percent on an annual basis. Cereals turned dearer by 6.04% and rice by 6.10%. Prices of pulses shot up 28.98% and that of milk by 15.91%. Year-on-year fruit prices went up by 15.91%.

Rs v/s US $

On Jul. 12, 2010 (Monday),

On Jul. 13, 2010 (Tuesday),

On Jul. 14, 2010 (Wednesday),

On Jul. 15, 2010 (Thursday),

On Jul. 16, 2010 (Friday),

Economy & its sectors

Confer industry status to retail sector: Assocham

Industry body Assocham has said it has urged the govt to confer industry status to the retail sector at a time when the industry ministry has thrown open a debate for allowing foreign direct investment in the sector. The chamber said it has submitted a note to ministries, including finance, commerce and industry and consumer affairs, urging them to confer industry status to the retail sector, which would lead to its further development. The advantages of the status would encompass greater focus on retail development, fiscal incentives, availability of organised financing and establishment of insurance norms, it said. ``The status will increase focus on retail development and provide fiscal incentives to it. Also, ensure availability of organised financing and establishment of insurance norms,`` Assocham Secretary General D S Rawat said. It said, there is also a need to bring the retail sector at par with that of other countries. ``There is a need to study the fiscal and regulatory mechanism adopted by other countries in terms of development in the retail sector,`` Assocham said. It said the status would also help in increasing the organised retail sector`s share in the overall retail industry. Currently, the organised retail`s share is merely four per cent in the USD 330 billion Indian retail industry, the chamber said. It said the government should consider treating the retail sector as a thrust area, on the lines of food processing sector, as retail has both forward and backward linkages. Further, the chamber said, there is a need of a comprehensive legislation in order to eliminate obtainment of multiple licensing. Currently, retailers need to obtain multiple licences and permissions ranging from basic trading licences to product specific licences and pollution clearances for setting up retail outlets. In June, the industry ministry sought the views of different stakeholders asking whether FDI in the sector should be permitted. The ministry has sought stakeholder`s comments by July 31. At present, FDI in multi-brand retail is prohibited in India. However, the government allows 51% FDI in single brand retailing and 100% in wholesale trade.

Deora asks states to lower VAT on fuel

Welcoming the Delhi government move to lower VAT on diesel, oil minister Murli Deora asked other states to follow suit and shit towards specific rates. Deora complimented Delhi chief minister Shiela Dikshit for reducing value added tax (VAT) on diesel from 20% to 12.5%, resulting in a Rs 2.70 per litre fall in prices. He also expressed hope that other states would also follow Delhi`s example to provide relief to consumers. Last month`s increase in fuel prices had a cascading effect on retail rates paid by consumers due to the ad valorem nature of the state sales tax. ``VAT is levied by states on an ad valorem basis, i.e., as a percentage of the price of the product. This means that when oil prices are high, the taxation on the products is higher, rendering the product even more expensive,`` Deora said in a statement, adding, ``...to address this issue, the ad valorem component of the VAT can be converted into a specific component, at pre-price hike levels,`` he said. Deora said the Central excise duty on petrol and diesel has been converted into fixed rates while the excise and customs duty on kerosene and LPG has been reduced to nil. Andhra Pradesh levies the highest VAT of 33% on petrol in the country, followed by Tamil Nadu, where it is 30%. Kerala, which levies 29.01% VAT on petrol, has the highest tax rate for diesel at 24.69%. Pondicherry has the lowest VAT on petrol in the country at 15%, while Haryana and Punjab have the lowest rates for diesel at 8.8%. ``The VAT rates are very high in most of the states, and need to be reduced,`` Deora said, and added the high VAT rates in many states further compound the increase in basic prices. Bihar levies 12.5 percent tax on PDS kerosene. The government had last month raised petrol price by Rs 3.50 a litre, diesel by Rs 2 per litre, domestic LPG by Rs 35 per cylinder and kerosene by Rs 3 a litre.

RBI likely to announce sunset clause for base rate migration

The Reserve Bank is likely to announce a sunset clause with a deadline of June 30, 2011, for all loans in the erstwhile benchmark prime lending rate (BPLR) system to help banks migrate to the new base rate model. Banks had approached the Reserve Bank for such a clause for all BPLR-linked loans, which would have otherwise forced them to administer two types of benchmarks -- base rate and BPLR -- for many years if a borrower refused to switch to the base rate. Asked whether the RBI has agreed to the sunset clause, SBI chairman OP Bhatt told reporters in Mumbai that the central bank is currently examining the implementation of the clause with a one-year deadline, and is likely to make an announcement in this regard soon. ``Yes, they are going to announce (the decision on sunset clause)...the RBI is currently examining the clause (with a deadline of) one year...that is by June 30 next year,`` Bhatt said after the customary pre-policy meeting with top RBI officials, ahead of the central bank`s quarterly policy review on July 27. Banks moved to the base rate regime from July 1, following the recommendations of an RBI-appointed panel to replace the erstwhile BPLR with the new model to improve transparency in lending. Earlier, banks used to cross-subsidise top-rated corporate loans with those given to the common man. With the implementation of the system, all new loans will be linked to base rates. Existing loans will be shifted to the base rate model upon reaching maturity, or if the customer opts for the change. However, bankers are worried that long-maturity loans, such as the ones for infrastructure, will continue in the BPLR regime if the customer refuses to switch. Most state-owned banks, including top lenders SBI and ICICI Bank, have fixed their base rates between 7.5 and 8% while some private and foreign sector banks have kept it at even lower levels to woo potential corporate clients. Bankers met Reserve Bank Deputy Governor Subir Gokarn on Monday, ahead of the quarterly review later this month, to discuss issues like credit growth, liquidity situation and base rate implementation. The RBI is widely expected to hike its overnight lending and borrowing rates (repo, reverse repo) by at least 0.25% during its policy review to check double-digit inflation.

New inflation index likely from Aug 14

A new system of inflation measurement, under which price changes of about 250 extra items would be covered, is likely to be rolled out by the government on August 14. The present monthly inflation measurement system, based on the wholesale price index, reflects the price variations of 435 items. The number of items would now go up to 685 and include a host of new products, including consumer goods like mobile phones and LCD televisions, sources said. Dated items such as typewriters and video cassette recorders (VCRs) would not find a place in the new inflation measurement mechanism. The Committee of Secretaries (CoS), headed by Cabinet Secretary K M Chandrasekhar, is likely to give a final shape to the new index next week. The base year of the new index would also be changed from 1993-94 to 2004-05.

Cabinet okays SBI-State Bank of Indore merger

The Cabinet today cleared the merger of State Bank of Indore with its parent State Bank of India, a move that would help the country`s largest lender to scale up operations and cut costs. ``The Cabinet gave its nod to the merger of State Bank of Indore with SBI. Acquisition of State Bank of Indore by SBI would allow economies of scale in terms of footprint, manpower and other resources,`` Information and Broadcasting Minister Ambika Soni said. State Bank of Indore has a large number of branches outside Madhya Pradesh and Chhattisgarh and all of them would be controlled conveniently from SBI`s local head offices in various states leading to substantial cost savings, she added.

Cabinet approves new symbol for Indian rupee

The Indian rupee will have a new symbol. This has been approved by a cabinet meeting chaired by Prime Minister Dr Manmohan Singh in New Delhi this morning. Briefing newspersons, the Information and Broadcasting Minister Ambika Soni said, the new symbol will be used by all individuals and entities within and outside India after its incorporation in unicode standard. It is expected to be in practice within six months inside the country while it may take upto two years for the international acceptance. Soni said, the State governments will be impressed upon to encourage the use of the new rupee symbol. In another decision, the Union Cabinet today approved the amendment of Arms Act 1959. The proposed amendments will obviate chances of issuing arms licenses to those whose antecedents are not bona fide. It will also ensure receipt of police verification report within a period of 60 days. The Cabinet also approved the introduction of the Arms Amendment Bill 2010 in the Parliament. In another decision, the Cabinet approved acquisition of the State Bank of Indore by State Bank of India. A bill to this effect will be tabled in coming session of Parliament.

Forex reserves kitty soars at USD 278,267 mn

India`s forex reserves increased by USD 1,287 million to stand at USD 278,267 million as on July 2, 2010 mainly on account of rise in foreign currency assets and gold reserves. As per the weekly statistical supplement of the Reserve Bank of India (RBI) released on July 9, 2010, foreign currency assets increased by USD 746 million to stand at USD 252,129 million. During the same period, gold reserves increased by USD 471 million to stand at USD 19,894 million as against previous week. Reserve position in the International Monetary Fund (IMF) increased by USD 15 million to stand at USD1,325 million. Special Drawing Rights (SDRs) increased by USD 55 million to stand at USD 4,919 million. Foreign currency assets expressed in USD include the effect of appreciation or depreciation on non-US currencies (such as Euro, Sterling and Yen) held in reserves.

Stock Markets

Midcap, Smallcap put up a good show this week

The Indian bourses commenced the week on a flat note with positive bias. The 30-share index, Sensex touched 18,000 marks on strong global cues, while the broad based Nifty 5,400 mark but failed to sustain the crucial levels at close. Rally continued for the next day. Infosys came out with disappointing numbers, but Nifty shrugged Infosys numbers by sustaining the mark of 5,400 mark. Both the Sensex and the Nifty traded above their 24-month high on that day. However Wednesday, July 14, saw markets erasing gains and ending on a subdued note due to select IT and teck stocks. Lackluster session continued for Thursday and Friday to conclude the week ended July 16, on a tepid note.

The 30 share index, Sensex climbed 122.28 points, or 0.69%, to 17,955.82 in the week ended Jul. 16, 2010. On the other hand, the broad based NSE Nifty gained 41.45 points, or 0.77%, to 5,393.90 in the same period. Mid-cap stocks moved up 80.63 points, or 1.10%, to 7,397.78 in the week. While small-cap shares climbed 172.83 points, or 1.86%, to 9,443.41 during the week. Major gainers over the week in the sectoral indices were BSE Realty, which soared 6.04%, BSE Consumer Durables and Bankex surged over 3% each, Capital goods moved up 2.44%, Power gained 0.87% and FMCG marginally up 0.51%. Oil & Gas dropped 1.03%, PSU fell 0.84% and Teck lost 0.67% among major losers in the sectoral indices over the week. Major gainers in 30-share index were DLF (8.10%), Tata Motors (7.92%), Tata Consultancy Services (7.48%), Jaiprakash Associates (3.98%), and ICICI Bank (3.55%) over the week. On the other hand Mahindra & Mahindra (5.38%), Infosys Technologies (3.26%), Reliance Communications (3.18%), Maruti Suzuki India (3.06%), and Bharti Airtel (3.05%) were the biggest losers in the Sensex over the week.

News round up:

Economy Corner:

Wholesale price-based inflation inched higher to 10.55% in June, owing to the pass through effect of the June 25 hike in prices of petroleum products. The WPI numbers were provisionally 10.16% in May, while it was revised upwards to 11.23% for April from the provisional 9.59%. Annual food inflation inched up to 12.81% for the week ended July 3, 2010 while fuel inflation shot up to 14.27%, reflecting the hike in oil prices. In the previous week food inflation was at 12.63% and fuel inflation at 18.02%. India`s industrial output, measured by index of industrial production, rose at a slower-than-expected 11.5% from a year earlier, lower than an annual growth of 16.5% in April. The IIP for April was revised downwards to 16.50% as compared to 17.6% earlier. The drop in the industrial output in May as compared to April is mainly because of the sharp decline in the capital goods output. Key Corporate Results:

Infosys Technologies:

IT bell whether, Infosys Technologies announced a marginal fall of 2.43% in consolidated net profit on y-o-y basis to Rs 14.88 billion, while growth of13.27% for the quarter ended June 2010.

Tata Consultancy Services:

Tata Consultancy Services (TCS), India`s largest IT services provider, posted a 24.26% rise in consolidated net profit which stood at Rs 19,060.70 million for the quarter ended June 30, 2010 as compared to Rs 15,339.40 million in the prior year period.