Industry on the brink
Centre�s debt crunch deepens
Tight lid on price pressures
Agriculture bounces back with 6% growth
US-64 to be brought under Sebi control
Right diagnosis sans prescription
Sensex tops 3700-mark
Grasim sells loss-making Gwalior unit
Juggler Nitish finds a fine balance
Foreign Exchange, Bullion, Stock Indices

New Delhi, Feb. 26: 
Industrial growth is down to a piffle at 2.3 per cent during April-December 2001 against the 5.8 per cent achieved in the year-ago period. It�s is the lowest growth rate recorded in the last decade and an indication of just how arid the industrial wasteland has turned into.

The Economic Survey points out that slowdown in domestic and global demand have affected industrial growth adversely. It says that the outlook for Indian industry will depend on their ability to winch up demand and investment at home and more crucially on just how quickly the rest of the global economies�badly clobbered by cold winds of a sweeping recession�pick themselves off the floor.

The slowdown had begun in the previous year (2000-01) but it down-shifted a few more gears in 2001-02. Industrial production measured by the index of industrial production (IIP) registered a growth rate of 5.0 per cent in 2000-01 against a growth of 6.7 per cent in 1999-2000.

During the nine months of this year (April-December), the industrial slowdown has been observed across all major sectors. Manufacturing sector growth fell to 2.4 per cent, much less than the 6 per cent during the corresponding period last year. Mining sector growth at 1.1 per cent was significantly lower than the 4.4 per cent recorded during the same period last year. Electricity generation growth rate of 2.7 per cent was much lower than 4.8 per cent recorded in the same period last year.

In terms of use-based classification, consumer durables and consumer non-durables with growth rates of 12.5 per cent and 2.3 per cent were much lower in the current year (April-December 2001-02) compared with 17.8 and 5.3 per cent respectively during the same period last year.

Unsatisfactory performance of the infrastructure sector is reflected in the six core infrastructure industries (with a weight of 26.7 per cent in overall index of IIP), which recorded an average growth of 2 per cent during the first three quarters of the current year compared with 6.8 per cent in the same period last year. The six infrastructure industries are electricity, crude oil, petroleum refinery products, coal steel and cement.

In wake of the all-round industrial slowdown, the survey suggests that industry must focus on being competitive in the face of rising domestic and foreign competition.

�The government on its part must resist any attempts to delay the process of liberalisation and deregulation and continue to deepen the reforms. It should remove all obstacles and bottlenecks for unleashing competitive forces in the industrial sector,� the survey says.

Torpid trade

The survey has painted a gloomy picture for Indian trade with recession continuing to take a toll on its main export-import partners � the US, Japan and Europe.

Exports grew by a niggardly 0.6 per cent in the first nine months of the current fiscal compared with a spry 20.8 per cent in the same period last year. Imports have also contracted by 1.9 per cent in the first half of 2001.

�A synchronised decline in import demand from major destination countries has made the trade outlook more bleak and is likely to impact our export growth in the current financial year,� the survey said.

Trade will be constricted if policies like capital account liberalisation that were announced by the government in its mid-term exim policy and the budget are not adhered to, the Survey warned.


New Delhi, Feb. 26: 
Is the Central government sinking into an internal debt trap? The Economic Survey figures released today seems to indicate it just might be.

The government�s internal liabilities as a percentage of the GDP has increased to nearly 55 per cent or over Rs 12,56,000 crore in the current fiscal. Even more dangerously for the government, nearly 88 per cent of this huge loan overhang has been taken from lenders other than the Reserve Bank at high interest rates.

The government will be paying an average of 8.9 per cent interest on this borrowings, forking out a staggering Rs 1,12,300 crore in 2001-2002. The incidence of high real interest rates not only results in a situation of unsustainable debt service burden, it also leaves the central government with little money to spend on its priority areas � defence, education, healthcare, power and irrigation.

Some 70 per cent of the total tax receipts of the Centre is being spent on just paying out interest. Leaving just 30 per cent of tax revenues in the kitty and an equal amount from non-tax revenues for everything else including paying the salary and pension dues of an ever increasing army of civil servants. Civil servant pensions alone will cost the government some Rs 22,410 crore this year, far more than the gross revenues of any private sector firm in this country.

No attempt has yet been made to retire or liquidate old debts as the government has been running on an ever-increasing fiscal deficit. Fiscal deficit has gone up from Rs 37,606 crore in 1990-91 to an all time high of Rs 1,16,314 crore this financial year.

The high fiscal deficit figure of 5.1 per cent coupled with ballooning of the country�s debt stock and hike in interest outgo will not augur well for the country�s credit-worthiness in global markets.

Moody�s credit rating service has already reduced India�s country rating to below investment grade.Amongst the factors pointed out by Moody�s were the government�s rising debt burden.

As a result of lowering of the credit rating by international agencies, actual foreign direct investment into the country has been hit.

The country recorded FDI of just $ 2.36 billion between April and November 2001 compared with $ 3.55 billion which flowed in just five years back in 1997-98. Even portfolio investment has been modest at $ 1.3 billion during this period compared to over $ 3 billion in 1999-2000. A further downward revision in India�s rating can be expected to further cut down both FDI and portfolio investment flows.

Luckily for the country, the central government�s external liabilities have been rising at a very slow pace and has as a percentage of the GDP actually fallen. External debt has risen from Rs 58,428 crore in 2000-01 to Rs 59,593 crore, this fiscal in absolute terms. While as a percentage of GDP it has fallen from 2.8 per cent to 2.6 per cent.


New Delhi, Feb. 26: 
The genie has been shoved back into the bottle: inflation has been tamed and won�t trouble us for a while.

The survey makes a virtue of a symptomatic malaise by saying that inflation has tumbled to 1.3 per cent, its lowest level in two decades. In the year 2000-01, it ruled at 4.9 per cent.

In terms of the wholesale Price Index (WPI) for 2001-2, the 52-week average inflation rate declined from 7 per cent at the beginning of 2001-2 to 4.7 per cent for the week ended January 19, 2002. In 2000-1, it was 7.1 per cent.

The survey states that subdued inflation rates of major trading partners has had an influence on the domestic inflation rate. It does not see this as a sign of a torpid economy where demand has been wrung dry by the recessive forces that have been in play for a while.

The present low inflation rate may be a manifestation of globalisation and liberalised trade regime, it says. The survey said low prices in manufactured sector, crude oil and agricultural food-grains led to a dip in inflation.

It forecasts that moderate inflationary expectations may continue through 2002-03 if there are no external energy price shocks. It also said that opening up of trade has increased competition for Indian companies and low inflation in competitor countries have had a sobering effect on domestic prices in the manufactured sector.

Also, low international prices of crude oil exerted less pressure on domestic energy prices. Further, adequate supply of most primary products and over-supply of food-grains caused inflation in the primary sector also to remain low this year, the survey said.

The inflation rate in terms of the consumer price index for industrial workers (CPI-IW) remained below 4 per cent until July 2001 and increased to 5.2 per cent in August 2001. The index displayed a downward trend during September -October 2001 but increased again to 4.9 per cent November and further to 5.2 per cent in December 2001.

FDI bucks trend

Foreign direct investment (FDI) into India bucked the global trend to post a robust 61 per cent growth at $ 2.37 billion during the first eight months of the current fiscal against $ 1.47 billion last year.

The Economic Survey for 2001-02 released today observed FDI inflows during the current financial year had �so far been encouraging�.


New Delhi, Feb. 26: 
The first shoots of recovery are visible in the farm sector with agricultural growth at nearly 6 per cent during the current year, says the Economic Survey. That is a considerable bounce-back from the negative growth of 0.2 per cent in 2000-01.

Much of the growth is attributable to the rise in food-grain production to 209.2 million tonnes, up from 195.9 million tonnes in the preceding year. This year�s grain mountain will only be slightly less than that in 1999-2000, when it touched a record 209.8 million tonnes.

This year�s food-grains output is likely to be about 13 million tonnes more than last year, but the survey states that the emphasis on minimum support price (MSP) has benefited only rice and wheat at the expense of diversification.

One important factor is that the terms of trade still lies heavily weighted in favour of agriculture as farm prices have stayed ahead of industrial good prices, particularly in the nineties.

The Survey says the good agricultural performance means that this will lead to a rise in rural incomes, thus generating fresh demand in the construction sector as also for other industrial products.

Despite an advance estimate figure of 5.7 growth for the agriculture and allied sector, the Survey points out that the large accumulation of rice and wheat stocks, along with a shift in consumption pattern away from cereals to non-cereals, warrants a policy re-orientation towards non-cereal crops.

Pointing towards a need for growth in non-cereal crops like oilseeds, pulses, fruits, vegetables and dairying, the Survey points out that there are no incentives and infrastructure for crop diversification.

Diversification of agriculture production requires the development of rural infrastructure, as also removal of restrictions on stock limits and agri product movement, the survey says.

Agricultural research and extension would also require re-orientation to meet the changing needs of the agriculture sector, the Survey says.

The value of farm imports declined to about $ 1.8 billion in 2000-01 from $ 2.8 billion in 1999-2000. Farm exports increased to $ 6 billion in 2000-01 from $ 5.6 billion in 1999-2000.

Selloff target

There�s just a little over a month to go before the curtains close on this fiscal, but the government hopes to sell its holdings in 10 public sector undertakings, including Maruti Udyog, ITDC, Hotel Corporation of India, Jessop and Paradeep Phosphates. However, the ground reality is that it is all set to miss the enhanced target of Rs 12,000 crore it set for itself at the start of the year.

The divestment programme did not really take off until December due to several hurdles, notably the Supreme Court case challenging the sale of the government�s 51 per cent stake in Balco to Sterlite Industries. Moreover, the move to sell off the two state-owned airlines�Air-India and Indian Airlines�was grounded before take-off after the bidders either disappeared from the scene or were disqualified.


New Delhi, Feb. 26: 
Mutual fund major Unit Trust of India�s flagship scheme US-64 will be brought under the ambit of the Securities and Exchange Board of India (Sebi) in a few months. The Economic Survey tabled in Parliament today says US-64 will be taken out of the administrative pricing ambit and will be made net asset value-driven.

The Survey also stated that a set of new policies governing all mutual funds would be implemented, under which all mutual funds will have to disclose their portfolios every six months.

The pre-budget document said an analysis of trends in the market shares of mutual funds has revealed that UTI�s market share had plummeted from 85 per cent in 1996 to 50 per cent in 2001.

�UTI�s US-64 scheme has faced repeated problems owing to the administrative setting of entry/exit prices,� the Survey observed.

It said the performance of UTI was badly affected by the downtrend in the stock market, adding in the first nine-months this fiscal, UTI�s fund outflow exceeded inflows by Rs 5,151 crore, whereas inflows exceeded outflows by Rs 480 crore in the previous corresponding period.

During April-December 2001, UTI accounted for a �modest� share of 3.7 per cent as compared with 14.8 per cent in the year-ago period, the Survey said. �UTI�s redemptions/repurchases exceeded the gross resource mobilisation by more than two times during the first nine months, resulting in negative net resource mobilisation.�

UTI�s woes, however, did not rub on other mutual funds which were able to ratchet their gross resource mobilisation to Rs 1,03,666 crore from Rs 59,430 crore during the previous corresponding period, an increase of 74.4 per cent.

Private sector mutual funds accounted for 89.2 per cent of the total resource mobilisation during April-December 2001 compared with 80 per cent in the previous year. The public sector MFs accounted for 7.1 per cent.

Under the new policies, mutual funds will have to disclose investments in various types of instruments, and the percentage of investment in each scrip to the total NAV, illiquid and non-performing assets, investments in derivatives and in ADRs/GDRs. All asset management companies are required to maintain records in support of each investment decision.

Net FII investments declined by $ 113.2 million in September 2001. The net FII investment amounted to $ 1295 million during April 2001-January 2002, compared with $ 1,379 million during the previous corresponding previous period.

The stock markets have been severely affected by the developments in real estate. The deceleration in industrial growth has significantly reduced resource mobilisation in the primary market, the Survey noted.


New Delhi, Feb. 26: 
Industry reckons the Economic Survey presented today succintly sums up what ails the country but stops short of clearly enunciating a prescription of reforms to revive the near-comatose economy.

�The survey has rightly pointed out that high government borrowings coupled with administered returns on small savings were responsible for the high real interest rates in the economy; but the reform policies have not been lined out properly,� said Ficci president R.S. Lodha.

He welcomed the Economic Survey�s perceptions on the high real interest rates and the de-reservation of the small-scale sector. �Today, there is an urgent need to make contractual savings subject to market-related interest rates for containing the interest payments of the government and to also reduce interest rates for the economy. The survey has called for a pro-active restructuring policy to address the issue of corporate debt restructuring. Only the quick implementation of the legislative backup relating to foreclosure and securitisation will help tackle the problem of debt overhang in many sectors,� Lodha said.

Sanjiv Goenka, president of the Confederation of Indian Industry (CII), said: �In the backdrop of the declining trend in industrial production revealed by the survey, there was a need to stimulate investment for growth in the economy. I hope the forthcoming Union Budget of 2002-03 would contain measures to enhance growth.�

A reduction in the corporate tax rate to 30 per cent from the current 35 per cent, elimination of minimum alternate tax (MAT) and reintroduction of the investment allowance for a limited period of five years at the old rate of 25 per cent were the three steps identified by Goenka.

�The silver lining in the economy this year had been the agricultural sector that had posted a growth of 5.7 per cent as against negative 0.2 per cent last year,� he said. �This sector will also play a vital role in bolstering the overall growth of the economy.�

Low level of capital formation was one of the major concerns in the agricultural sector and there was a need to arrest the declining trend in public investments to address this issue.

Goenka said: �The key to reducing the government�s fiscal deficit was to enhance growth in the industry and manufacturing sector as higher growth rates would lead to greater buoyancy in tax revenue. So the coming budget should concentrate on this.�

Assocham president K.K. Nohria said: �The financial health of the states is worrying and becoming a stumbling block in realising public investment and therefore there was a need to evolve a mechanism for implementing infrastructure projects�. We hope the finance minister will remove the various regulation and restriction on agriculture required to remove the inter-crop price disparity.�


Mumbai, Feb. 26: 
Dalal Street went into raptures today, the railway budget and the Economic Survey firing hopes about the government�s willingness to swallow political hot-potatoes in its zeal to push reforms.

The Bombay Stock Exchange (BSE) sensex zoomed 99 points at 3,712.74 points, extending its streak of gains to the fourth straight day.

An announcement by UTI, the country�s largest mutual fund, that the NAV of US-64 was Rs 6.74 today, perked up sentiment and buoyed investors. A unit of the flagship scheme was worth Rs 6.62 on Monday, a valiant recovery from a low of Rs 5.81 on December 28, 2001.

In the forex market, the rupee gained against the dollar, closing at 48.72/73, on the back off brisk FII stock buying. The currency had sunk to an all-time low of 48.80 on Monday. Dealers expected central bank intervention in the form of dollar purchases through state-run banks, but that did not happen till late in the day.

Earlier in the day, the rupee plumbed an intra-day low of 48.81, but it bounced back as more dollars continued to pour in. In the money market, where prices of government securities had crashed on Monday, there was a rally in gilts, fuelled by anticipation that small saving rates will be slashed after all.

On bourses, the mood was lifted by the Economic Survey, which has made a strong case for lower interest rates.

Data released by the Securities and Exchange Board of India on Monday showed foreign funds having invested $ 406.7 million between February 1 and February 22 � three times January�s tally of $ 137.4 million.

The markets feels low interest rates will channel savings into mutual funds with a predominant exposure in equities, apart from reducing interest costs for firms.

Another sign that a bull rally is on the horizon lay in the fact that gainers outnumbered 752:553 on BSE. The volume of shares traded also surged. Sentiment was also boosted by the government�s Railway Budget, the freight rate revision seen as an indication of good economics.

�Today�s announcements were huge positives as the government continues to ride the pro-reform bandwagon.

Hindustan Petroleum Corporation and Mahanagar Telephone Nigam Ltd vaulted to new highs and so did Shipping Corporation of India.

Cement Stocks were also in the limelight mainly on the railway minister�s decision to reduce freight rates on the commodity, which was contrary to market expectations. ACC, L&T, Grasim all rose in unison.

Nestle India, the FMCG major gained on expectations that the, the Swiss-based parent will mop up another 10 percent to eventually delist its Indian subsidiary.

Dr Reddy�s Laboratories gained 8.8 percent on news the US FDA has accepted an application by the company to market a slightly modified generic form of Pfizer�s hypertension drug, Norvasc, in the United States.

A north-based state-run firm sold dollars, along with banks that normally act on behalf of foreign funds, while a couple of oil firms covered month-end import payments, dealers said.

They said foreigners may be investing ahead of the central budget, which is to be unveiled on Thursday, as indicated by rising portfolio inflows and the bullish Bombay share index.


Mumbai, Feb. 26: 
Grasim Industries said it has divested its loss-making fabric making unit at Gwalior to Melodeon Exports and its Associates (Swastik Group of Bhilwara) as a going concern in a move approved by the board today.

The factory is valued at Rs 15 crore, but Grasim will not receive any payment from the new owners.

The plant was the cradle of Grasim�s operations and products made there were sold under the �Gwalior Rayon� brand, named after the historical Madhya Pradesh town. The new management will retain all employees, Grasim assured in a statement released to the press today.

Grasim now plans to focus on its Bhiwani (Rajasthan) unit, turning it into a textile-manufacturing hub.

The announcement pushed up the company�s shares by Rs 2.35 to Rs 301 at close on the Bombay Stock Exchange today against its previous finish of Rs 298.65.

Vikram Rao, group executive president responsible for the fabric and apparel sector, said: �Consolidating fabric manufacturing operations in one location is a strategic step to bring in synergies, bolster operational efficiency and ensure the profitability of the business.�

Brands like Grasim and Graviera, along with their entire range, such as uncrushables, Acquasoft, Finesse, Safari, Coolers, E-Strech and All Seasons, will continue to be made and marketed from Bhiwani. A host of other innovative fabrics, such as the �Ice Touch� range and the �Purista� Collection will be launched soon.

The pressures faced by the textile industry, the challenging market environment in suitings segment, aggressive competition and operational factors forced Grasim to carry out an extensive techno-commercial evaluation of its Gwalior and Bhiwani units, company officials said.

Grasim�s textile division, a leader in the premium synthetics segment, is facing intense competition, prompting it to consolidate fabric manufacturing in one unit.

The shift is expected to improve operational efficiency and ensure the division�s profitability, the company said.


New Delhi, Feb. 26: 
It�s a high-wire act and railway minister Nitish Kumar has taken care not to overbalance while correcting the skew in the railway�s decades-old cross-subsidisation plank where industry was forced to bear the burden of high freight costs to offset the losses arising from low passenger fares.

While doing this, Kumar has raised the freight rates for grains and pulses, urea and groundnut oil while marginally cutting transport cost for steel, cement, diesel and kerosene in his Railway Budget for 2002-03 presented in the Lok Sabha today.

The move is likely to bring a freight rationalisation that will help railways earn an additional Rs 450 crore during 2002-03. While no across-the-board increase in freight rate has been proposed, a hike of 123 per cent in salt for transporting it for about 500 km (Gandhidham to Jhansi) to Rs 631.89 per tonne from Rs 283.30 is certainly a cause of concern for the common man.

The tariff has been raised by 11.84 per cent for transporting groundnut oil over a distance of 700 km and a 7.89 per cent increase for grains and pulses over the same distance.

However, freight rates have been reduced for five of the 12 commodities taken up for revision, including iron and steel, cement and pig iron.

Railways have raised tonnage target for goods to 510 million tonnes for 2002-03 despite a downward revision in goods traffic as well as revenue for this fiscal on continued economic downtrend.

Freight loading target in the current fiscal was revised downward from 500 million tonnes to 489 million tonnes for 2001-02, resulting in Rs 625 crore less earning than the budgeted figure of Rs 25,235 crore.

Goods movement dipped by nearly 4.3 per cent over the current fiscal with revenues falling by 6.1 per cent to Rs 24,610 crore.

The budget has proposed a marginal increase in coal traffic from 227.3 million tonnes in 2001-02 to 232.50 million tonnes in 2002-03, with coal supplies to thermal power stations scheduled to go up to 168 million tonnes.

The movement of petroleum oil and lubricants will remain flat at 36.5 million tonnes. Officials in the railway ministry said: �The freight hike is nominal but it will make the railways competitive with the road sector which has been eating into our market share.�

Ashok Bhatnagar, former chairman of the railway board, said: �This is a soft and semi-populist railway budget. This retains the element of cross-subsidy in freight. The freight rates of high-volume commodities like edible oils, foodgrain and pulses have not been hiked to the extent they should have been. Considering the financial situation of the railways, the freight rates for these commodities should have been hiked further.�

Railways have incurred a loss of Rs 5413.41 crore on account of the social service obligations of the government, including Rs 309.02 crore for carrying essential commodities below the cost of production.

But Steel Authority of India chairman Arvind Pande said: �We are happy that high-freight burden has been reduced which is borne by iron and steel items.�



Foreign Exchange

US $1	Rs. 48.73	HK $1	Rs.  6.15*
UK �1	Rs. 69.46	SW Fr 1	Rs. 28.40*
Euro	Rs. 42.37	Sing $1	Rs. 26.30*
Yen 100	Rs. 36.41	Aus $1	Rs. 24.75*
*SBI TC buying rates; others are forex market closing rates


Calcutta			Bombay

Gold Std (10gm)	Rs. 4995	Gold Std(10 gm)	Rs. 4900
Gold 22 carat	Rs. 4715	Gold 22 carat	NA
Silver bar (Kg)	Rs. 7575	Silver (Kg)	Rs. 7665
Silver portion	Rs. 7675	Silver portion	NA

Stock Indices

Sensex		3712.74		+ 99.23
BSE-100		1788.54		+ 40.92
S&P CNX Nifty	1189.40		+ 23.95
Calcutta	 124.93		+  2.44
Skindia GDR	 557.87		-  1.03

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