Sunday, May 2, 2010

Current Events: Business & Economy

From farm to factory

The share of industry and services in rural GDP has risen

There has been a significant change in the composition of the gross domestic product (GDP)

of the rural areas. This has been marked by a faster

growth of rural industry and services vis-à-vis agriculture.

Analysis of Central Statistical Organisation (CSO) data,

done by the National Council of Applied Economic

Research (NCAER), reveals that while the share of

agriculture in rural GDP has dropped from 52% in 1999-

2000 to 42% that of industry and services, taken together,

has surged from 48% to 58%. Industry alone now

accounts for nearly 30% of rural GDP, and services the

remaining 28%.

By the middle of the next decade industry in the rural

areas could well outstrip agriculture as a contributor to

rural GDP. India could well be on its way towards

achieving the rural industrialisation that China's

Township and Village Enterprises model achieved in that country.

The growth of alternative occupations in the countryside will compensate for the low

employment growth taking place in agriculture. The people who work in the fields during the

busy agricultural seasons of sowing and harvesting are picking up skills to take up nonagricultural

work at other times. CSO's economic census of 2005 showed that about a fifth of

the rural workforce was employed in agricultural establishments, while four-fifths worked in

non-agricultural establishments.

The CSO shows that the robust performance of the manufacturing and services sectors in

recent years has not been confined to the urban areas and has trickled down to the semi-urban

and rural areas as well. The diversification of job patterns also indicates reduced dependence

on agriculture for livelihood. This augurs well for poverty alleviation as well. It could also

help curb migration from rural to urban areas and thereby ease the pressure on cities that are

struggling to cope with the influx.



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Government programmes like the Provision of Urban Facilities in Rural Areas (Pura) have

worked well in this regard. People would prefer to live in a semi-rural area or small town,

provided there is good telecom connectivity (including broadband), a good road network and

proper education and healthcare options.

The National Commission on Farmers, headed by M S Swaminathan, has suggested the

launching of a national rural, non-farm employment initiative to expand opportunities for

non-farm employment and additional income generation for the rural population.

Ethanol blending runs on empty as supplies dry up

Govt has not raised the planned compulsory blending ceiling to 10%

A shortfall in production has thrown out of gear the

government's plans to blend ethanol with petrol. The government

made it mandatory to blend petrol with 5% ethanol 16 months

ago but the plan never stabilised and the October-2008 deadline

to raise it to 10% has been missed.

In October 2007, when the blending policy was announced, oil

marketing companies estimated that 1,800 million litres of

ethanol would be required to meet the 5% norm. The companies,

however, only managed to contract for around 1,320 million

litres and actually procured just 120 million litres until January


The lack of success of the blending programme is linked to a crisis of sorts in the sugar

industry, as a result of which the sugar mills that produce ethanol as a by-product have been

operating at a fraction of their capacity. A worldwide sugar glut has seen prices crash, as a

result of which farmers have shifted to other crops that fetch better prices. Sugarcane acreage

in major producer states has declined 20 to 25%. India's top-three sugar producers have

recorded the shortest sugarcane crushing period in a decade and most were forced to operate

at 40 to 50% of their capacity. This has impacted the production of molasses, the raw material

for ethanol. Industry estimates suggest the molasses output could decline over 30 per cent this

crushing season. Sugarcane output is expected to remain low in the next season, which will

start in October 2009, as well.

Alternative fuels like ethanol assumed significance across the world when crude prices had

rallied to unprecedented highs. However, the attention seems to be waning now that crude oil

prices have fallen. The Indian basket of crude has crashed from a high of $142 a barrel in

July 2008 to around $40 now, a decline of over 71%. This defies the logic to import ethanol

even though cheaper imports are possible from countries like Brazil.



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The state-owned oil marketing companies procure ethanol at Rs 21.50 a litre from sugar mills

through a tendering process. Some oil marketing companies also had plans to enter ethanol

production on their own.

Blending has been largely successful in the northern states but less so in states like

Maharashtra, Andhra Pradesh, Tamil Nadu, West Bengal and Orissa. "What the sugar

industry needs is a consistent buying pattern, so that more investment is made in ethanol,"

said Narendra Murkumbi, managing director, Renuka Sugars, a large ethanol producer.

Commerce Minister declares measures to benefit exporters

Lowers 2008-09 export targets from $200 bn to $175 bn

Commerce Minister Kamal Nath has announced as many as 26 measures to promote exports,

mostly simplifying foreign trade schemes. The government has lowered the export target for

2008-09 to $175 billion against the $200 billion announced in April 2008.

The trade facilitation measures in the package include a longer period to fulfil export

obligations on many existing promotion schemes.

For example, duty credit scrips of export promotion schemes, as well as the duty entitlement

passbook scheme (DEPB), will now be issued to exporters as soon as they produce the

shipping bill. Earlier, exporters were required to submit bank realisation certificates, which

come 10 to 12 months after the export consignments are sent.

The government has also extended the export obligation period under the advance

authorisation scheme used by exporters to import duty-free inputs for export goods from 24

to 36 months. Exporters using this scheme have to commit an export obligation of a certain

value. But due to fewer orders from overseas markets, exporters were finding it difficult to

fulfil commitments under the scheme.

According to trade experts, this move could benefit exporters by up to one per cent of the

value of export consignments. "If export obligations were not fulfilled, a request for

extension would attract an additional fee. The one-year extension will give them relief," said

a trade expert based in Delhi.

Experts said procedural simplifications will increase the marketability of duty credit scrips

linked to export promotion schemes. These scrips are traded amongst the exporters.

The package did not include any measures on simplifying procedures for service tax refunds

for exporters. Government officials said that issue is still being discussed with the finance

ministry and a clarification in this regard is likely soon.



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The minister announced a special package for textiles and leather, two sectors that

collectively account for 12% of India's exports and have been hit hard by the global

downturn. These two sectors will get an additional Rs 325 crore under the Focus Product

Scheme, which gives duty credit on imported inputs for exporting to specified countries.

Pranab unveils fiscal stimulus III

Excise duty and service tax reduced by two percentage points

Finance Minister Pranab Mukherjee announced a stimulus package for the economy, the third

this financial year, cutting excise duty and service tax two percentage points each, effective

midnight, and extending previous excise cuts beyond March 31, 2009.

Service tax has been cut across the board from 12% to 10% and the excise has been reduced

by the same margin only for items that currently attract the 10% rate.

Consumers are expected to benefit significantly from this latest cut in indirect tax, since over

90% of excise duty collections come from the 10% slab rate, which is levied on white goods,

metals, commercial vehicles, iron and steel and cement. Overall, consumers can expect a

more than 2% reduction in retail prices if the excise and service tax cuts are passed on fully.

This is because the Value-Added Tax (VAT), which is levied at the state level, is applied

over and above the excise duty.

Tyre makers have already responded by announcing a two percentage point cut in prices. The

stimulus package will cost the Central exchequer revenue of Rs 29,100 crore. Service tax will

account for Rs 14,000 crore, excise duty Rs 8,500 crore and customs duty (because of

reduction in countervailing duty) Rs 6,600 crore.

Today's cuts will increase the fiscal deficit for the next financial year by 0.48% of GDP,

taking it to near 6% levels for the next fiscal, against the budgeted figure of 5.5% and more

than double the 2.5% mandated under the fiscal responsibility law. The tax sops, first to fight

inflation and then to boost demand, will cost the government Rs 52,000 crore in the current

fiscal. Two previous packages were announced in December and January. The government

has already revised downwards the gross tax revenue target in the current fiscal by over 8%.

PM panel lowers 2008-09 growth forecast

High fiscal deficit could be a drag on economic growth

The Prime Minister's Economic Advisory Council (EAC) has cut its growth forecast for the

current fiscal to 7.1%, lower than the previous projection of 7.7%, due to "painful

adjustments" to the ongoing global economic turmoil. India's economy had grown 9% in




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However, it has projected a growth rate of 7-7.5% or more in 2009-10 due to positive spinoffs

of recent fiscal stimulus packages, monetary easing, increased public expenditure, and a

likely rebound in global economy in the June-September quarter. The Council, in its second

review of the economy, said the sharp fall in prices of crude oil and other commodities would

have a positive bearing on inflation, which was close to 4% in March, much lower than the

earlier estimate of 8%.

The combined fiscal deficit of the Centre and the states would be at an undesirable level of

around 10%, the Council said. Council Chairman Suresh Tendulkar said it was not feasible to

stick to the Fiscal Responsibility and Budget Management Act's prudential norms at this

juncture as it might result in a steeper slowdown. The fiscal deficit has widened because of

supplementary demand for grants, stimulus packages and permission to the states to borrow

more. However, falling commodity prices would have a positive impact next year due to

lower oil and fertiliser subsidies, said Govinda Rao, a member of the Council.

The Council has lowered its investment rate estimate by 2.5 percentage points to 35% in

2008-09 over the previous year on account of financing constraints faced by companies and

lower investor confidence. The savings rate was also likely to be lower due to larger negative

savings of governments and corporations, it said. The Council has projected external payment

situation to be reasonably comfortable and expects the current account deficit to be at 1.9% of

GDP in 2008-09.

Agriculture is expected to grow at 3% as against the earlier projection of 2% in 2008-09.

Lalu gives fare deal to voters

Freight: For 2009-10, the target is Rs 59,059 crore

Railway Minister Lalu

Prasad announced a slew

of measures for

travellers, including a 2%

reduction in AC and

sleeper-class fares,

introduction of 43 trains,

including four new Garib

Raths, extension of 14

trains and increase in

frequency of some of the


Prasad also announced a

reduction of Re 1 for

fares costing up to Rs 50

for non-suburban

mail/express and

ordinary passenger trains.








Total receipts of which 83,696.89 84,233.18




Passenger earnings 21,681.00 22,330.00




Goods earnings 52,700.00 54,293.00




Total expenditure 67,274.27 73,166.66




Net revenue 16,422.62 11,066.52




Cash surplus

(after dividend) 20,147.10 14,609.44




All figures in Rs crore; Figures in bracket % change

BE: Budget Estimate; RE: Revised Estimate



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The railways will also extend 14 trains, including the Mumbai Garib Rath to Allahabad and

Jaipur Garib Rath to Delhi. The ministry has also decided to increase the frequency of

services of the Nizamuddin-Bapudham Motihari Garib Rath from weekly to bi-weekly and

the Secunderabad-Vishakhapatnam Garib Rath from four days a week to daily.

Indian Railways has projected an 8.7% increase in freight earnings for 2009-10 in the Interim

Railway Budget presented to Parliament. Railway Minister Lalu Prasad did not tinker with

the freight rates and instead assured better services to customers.

The railways have revised upwards their earnings from goods traffic. They now expect

freight earnings to grow 14% as against the earlier projection of 11%. The railways have

projected an 8.7% increase in freight earnings for 2009-10 at Rs 59,059 crore. Freight

earnings in 2008-09 are estimated to grow at 14.4 per cent at Rs 54,294 crore. Freight loading

is expected to increase 7% at 910 million tones (MT) in the 2009-10 fiscal, compared with

850 MT in the current fiscal.

RIL-RPL merger to create petro giant

RIL will get access to RPL's sizeable cash flow

Reliance Petroleum Ltd (RPL) is once

again merging with its parent firm Reliance

Industries Ltd (RIL). The merger will

create a giant with a place among the

world's biggest non-state petroleum

companies. RIL would issue one share for

every 16 held in the unit, giving it direct

control of the world's largest refinery


This would be the second merger between

RIL and RPL. RPL (the first refinery

project) had merged with RIL in 2002 to

consolidate its operations.

In May 2006, RPL was demerged from RIL to set up its second mega refinery complex and

was listed on the bourses as a separate entity after an initial public offering (IPO) that raised

over Rs 8,100 crore.

Now Mukesh Ambani is going for another merger to create a giant that will consolidate its

position as the largest private sector firm in terms of sales and profits. RIL is the country's

most valued company with a market capitalisation of Rs 1,99,094 crore. The combined

market value of the two companies currently stands at about Rs 2,33,384 crore.



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RIL's 70.38% holding in RPL will get extinguished post merger. Chevron of the US holds

5% in RPL. It bought the stake 3 years ago for 60 rupees per share. If it doesn't raise the

stake now to 29%, it will get the same amount of money it invested. RIL stake in RPL is

likely to increase to 75.4% on account of Chevron selling its stake back to RIL.

RPL, currently a subsidiary of RIL, set up a greenfield petroleum refinery and polypropylene

plant in a special economic zone at Jamnagar in Gujarat. With an annual crude processing

capacity of 580,000 barrels per stream day (BPSD), RPL will be the sixth largest refinery in

the world. RPL invested Rs 26,217 crore to set up the refinery complex till December 31,

2008. RPL successfully commenced operations at its complex refinery and started its crude

processing in Dec 2008. RPL started dispatch of its refinery products in January 2009.

Ranbaxy in the dock over data forgery

Investigations reveal a systematic pattern of questionable data, declares FDA

India's largest drug manufacturer, Ranbaxy Laboratories, had falsified data and test results of

medicines manufactured at its Himachal Pradesh facility to obtain marketing approval in the

United States, says the US Food and Drug Administration.

The FDA said the falsification happened in the case of both approved and pending drug

applications. The US drug regulator had stopped all new approvals from the facility in Paonta

Sahib, Himachal Pradesh, and had banned the sale of medicines produced from the facility in

September 2008. This is the first such charge by the US drug regulator against an Indian

pharmaceutical company.

The applications that were found to have falsified records include medicines approved from

the Paonta Sahib site for the US market, drugs for which applications are pending with the

agency and certain medicines manufactured in the US based on the data generated from this


In Sept 2008, the FDA had issued an Import Alert barring the entry of all finished drug

products and active pharmaceutical ingredients from Ranbaxy's Dewas, Paonta Sahib and

Batamandi facilities, due to alleged violations of US current Good Manufacturing Practices

requirements. That action barred the commercial importation of 30 different generic drugs

into the United States and remains in effect.

The agency is continuing its investigation to find if the medicines marketed by using

approvals generated through falsified data have any implications for safety and efficacy. To

date, the FDA has no evidence that these drugs do not meet its quality specifications and has

not identified any health risks associated with currently marketed Ranbaxy products.



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Honda City, Yamaha R15 bag awards

City beat competition from A-Star, Fabia, Indica Vista, Altis and Jetta

The new Honda City was awarded the Indian Car of the Year (ICOTY) 2009 while the

Yamaha YZF-R15 was chosen the Indian Motorcycle of the

Year (IMOTY) 2009. The jury for the awards consisted of

journalists from magazines such as Auto Bild, Auto India,

Business Standard Motoring, BBC Top Gear, Car India, Bike

India and Overdrive.

Only new cars and bikes launched in the calendar year 2008

qualified for the car of the year and motorcycle of the year awards. The seven finalists for the

Indian Car of the Year were the Hyundai i20, Honda City, Maruti Suzuki A-Star, Skoda

Fabia, Tata Indica Vista, Toyota Altis and Volkswagen Jetta. Among motorcycles, the

Yamaha YZF-R15 and the FZ16 and the Honda Stunner were the finalists.

The Indian Car of the Year award has been instituted in line with the European, American

and Australian Car of the Year awards and recognises the efforts of the Indian auto industry.

The winner of the prestigious award in 2006 was the Maruti Suzuki Swift. In 2007, the

Honda Civic was crowned winner and in 2008, it was the Hyundai i10. The Indian

Motorcycle of the Year 2008 was the Bajaj Pulsar 220 DTS-Fi.

Pietersen, Flintoff strike gold at IPL auctions

Both exceeded their base prices of $1.35 million each

Star England players Kevin Pietersen and Andrew Flintoff have emerged as the world's most

expensive cricketers after being

sold for a whopping $1.55 million

(approx. Rs 7.35 crore) in the

Indian Premier League auction,

surpassing Indian captain

Mahendra Singh Dhoni who had

fetched Rs 6 crore in the inaugural


The hard-hitting Pietersen was

bought by Bangalore Royal

Challengers while Flintoff went to

Chennai Super Kings. Both had a base price of $1.35 million.

Flintoff and Pietersen, like all other English players, will be available for just 21 days for the

second edition of the high-profile Twenty20 league although their contracts are for two years.



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Upcoming South African batsman Jean Paul Duminy ($950,000), Bangladesh paceman

Mashrafe Mortaza ($600,000), unheralded South African all-rounder Tyron Henderson

($650,000) triggered surprise bidding wars amongst the eight franchisees. The likes of

Duminy and Mortaza made a killing at the auction, far exceeding their base prices.

In contrast, the Australians, struggling to hold on to their cricketing supremacy for the past

few months, were a big flop with several of their players like pacer Stuart Clark,

wicketkeeper Brad Haddin and another fast bowler Ashley Noffke failing to attract any bids.

Michael Clarke, Australia's vice-captain, pulled out at the last minute, citing his country's

busy international schedule and family reasons.

Among other players first to be auctioned, Australia's Shaun Tait was purchased by title

holders of the inaugural edition Rajasthan Royals for $375,000 while upcoming South

African batsman Jean Paul Duminy went to Mumbai Indians for $950,000.

The biggest surprise was bidding war over Bangladesh Mortaza, who despite a very modest

base price of $50,000, was picked up for $600,000 by Kolkata Knight Riders.

Among the bargain buys, West Indian paceman Fidel Edwards went for his base price of

$150,000 to Deccan Chargers. The Chargers also bought Dwayne Smith for $100,000.

England's Owais Shah and Paul Collingwood were bought by Delhi Daredevils for $275,000


SC declines to intervene in Vodafone tax plea

Govt has demanded capital gains tax on Vodafone purchase of stake in Hutchison Essar

Vodafone was back to square one in its challenge to the assessment of capital gains tax on a

stake it bought in Hutchison Essar in 2007 with the Supreme Court declining to intervene and

asking it to first present its case before the tax authorities. A Bench headed by Justice SB

Sinha pointed out that Vodafone, the world's largest wireless service provider, should

approach the authorities and cooperate with them. It also asked Vodafone to submit a copy of

the share purchase agreement to the tax authorities.

Tax officials said the department could expect to collect up to half ($1 billion or Rs 4,900

crore) of the disputed amount as a result of the apex court's decision by March 2009. The

case relates to a tax demand that the tax authorities raised on Vodafone after it bought a

controlling stake (67%) in Hutchison Essar Ltd, India's third largest mobile service provider,

from Hong Kong-based Hutchison. Vodafone acquired a Hutchison owned company

registered in Cayman Islands, a known tax-haven, for $11.2 billion. It contended the

transaction involved two overseas entities and so the company was not liable to pay tax in




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The tax department rejected the contention and sent a notice saying the transaction related to

assets in India.

The question of jurisdiction of the authorities to assess the tax related to contracts between

foreign entities could be raised before the tax authorities, the Supreme Court judges said. If

the company was dissatisfied with the order of the authorities, it could approach a high court.

If it was aggrieved by the high court order too, it could then approach the Supreme Court,

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