5ECONOMY & POLICYBusiness Standard WEDNESDAY 1 JULY 2009, BANGALORESTAY UPDATED THROUGH THE DAY.

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(From Left) Maharashtra Chief Minister Ashok Chavan, UPA chairperson Sonia Gandhi andHCC Chairman & MD Ajit Gulabchand at the Bandra Worli Sea Link inaugurated by SoniaGandhi in Mumbai on Tuesday SURYAKANT NIWATE

BS REPORTER

New Delhi, 30 June

The government today ex-tended the tenure of Chief

Economic Adviser Arvind Vir-mani by three months on atemporary basis, said a financeministry spokesperson. Hiscurrent two-year term cameto an end today.

The pre-Budget Econom-ic Survey will be tabled in Par-liament by Finance MinisterPranab Mukherjee on July2 and Virmani, who holds aPhD in economics from Har-vard University, leads the teamthat helps the government pre-

pare the survey.With the government un-

der pressure for not main-taining fiscal prudence, Vir-mani acted as the govern-ment’s chief spokesperson injustifying the need for run-ning high government ex-penditure to sustain economicgrowth as private consump-tion and investment haveslowed down.

Prior to joining the financeministry as the CEA in 2007,Virmani served as principaladvisor in the Planning Com-mission. He also served assenior economist in the re-search department of the

World Bank and headed theIndian Council for Researchon International EconomicRelations, an economic think-tank.

Virmani, who had earlierserved as director in state-owned banks like Punjab Na-tional Bank and AllahabadBank, is one among thefavourites for the post ofdeputy governor in the Re-serve Bank of India (RBI). Thispost fell vacant after RakeshMohan, who was handlingmonetary policy, quit the cen-tral bank to pursue a teach-ing assignment in StanfordUniversity.

Arvind Virmani’s tenure extended by 3 mths

BS REPORTER

New Delhi, 30 June

Growth in the index of sixcore infrastructure in-dustries slipped to a

three-month low of 2.8 per centin May 2009 on account of adip in crude oil and refineryproduction as well as less pow-er generation by hydel plants.

The Index of Industrial Pro-duction (IIP) is most likely tobe in the positive territory inMay, even as the core sectorperformance was less than ex-pected because of positive in-dications from some compo-nents of the manufacturing sec-tor. The core sector has 27 percent weight in IIP. The core sec-tor performance in May waslower than that of April, whenit expanded by 5 per cent, aswell as the increase of 3.1 percent a year ago.

“IIP will be in the positiveterritory, but the growth will

be muted. Indications from tex-tile, auto and cement sectorsare positive, which will keepIIP floating in the positive,” saidShubhada Rao, chief econo-mist, World Bank.

Speaking to reporters here,Industry Secretary AjayShanker said: “In May, indus-trial output is expected to bebetter. Domestic demand-driv-en industries like cement, con-sumer goods and FMCG aredoing well.”

The core sector index waspulled down by a dip in crudeoil and refinery production.Crude oil production last ex-panded in November 2008.

Refinery production in themonth also dipped because ofless demand in overseas mar-kets as well as routine shut-down by domestic refiners. Pe-troleum ministry data showedthat in April-May, output fromBPCL and Essar refineries weredown by more than 20 per cent,

while Indian Oil Corporationand Reliance also producedless oil products.

Deficit in monsoon precip-itation also played a role in thelesser than expected core sec-tor production growth. Hydelpower generation got impact-ed because of low reservoir lev-els — one of the lowest seen inMay — which brought down

the expansion in electricity gen-eration to a three-month low.“Lower hydel power produc-tion could remain a challengein the next few months,” Raoadded. The meteorological de-partment has forecast that theIndia will receive only 93 percent of the long-term averagerainfall seen during the mon-soon months of 2009.

However, robust produc-tion growth in cement and coalsectors cushioned the fall incore sector growth. Expertsattribute the increase in coalproduction to additional de-mand from the power plants.Similarly, revival in demandfrom infrastructure projectshave also led to increased ce-ment production.

May core sector growth slips to 2.8%

Sector Weight in May May Apr-May Apr-May IIP (%) 2008 2009 2008-09 2009-10

Crude Oil 4.17 3.2 -4.3 2.1 -3.7

Petroleum Refinery Products 2.00 0.1 -4.3 2.1 -4.4

Coal 3.22 8.8 10.2 9.5 11.8

Electricity 10.17 2 3.3 1.7 5.1

Cement 1.99 3.8 11.6 5.4 11.7

Finished steel (carbon) 5.13 3.3 1.4 1.4 2.1

Overall 26.68 3.1 2.8 2.7 3.9

Source : Ministry of Commerce and Industry

INDEX OF SIX CORE INDUSTRIES MAY, 2009Sector-wise Growth Rate (%) in Production

BS REPORTERS

New Delhi/ Mumbai, 30 June

The government today de-cided to allow Special Eco-

nomic Zone (SEZ) develop-ers to access the External Com-mercial Borrowing (ECB) routeto meet their capital require-ment, said a finance ministrypress statement.

This will help realty firms,facing difficulty in develop-ing SEZs because of high costof credit and low demand, toavail overseas loans. HoweverECB proceeds may be used on-ly to develop infrastructure fa-cilities inside an SEZ, not fordevelopment of “integratedtownship and commercial realestate” within the tax-free in-dustrial zone.

“This move is a boon for de-velopers and will be of hugehelp for them,” said VikramDoshi, a Hyderabad-based SEZexpert. Agreeing that it wouldhelp realtors, Ravi Ramu, di-rector (finance) of Purvankara,a realty firm, said, “Cost of bor-rowing through ECB is at least4-5 percentage points lowerthan domestic borrowing, andavailability is also more.”

Considering the smallest ofSEZs (an Infotech one), whichcan be set up in a 10 hectarearea, the developer has to de-velop at least one million sq

ft in the processing area. Tak-ing a cost of Rs 1,800 per sq ft,this comes to Rs 150 crore. Giv-en the differential between ECBand the domestic cost of bor-rowing, of three to five per-centage points, the developerof the smallest of zones shouldsave at least Rs 4.5 crore ($1million) yearly, Obviously, largezone developers will save muchmore on interest cost.

“The new norms will helpin building industrial infra-structure in the processing area.RBI should now issue guide-

lines related to lending to SEZsunder the infrastructure norms,”said L B Singhal, Director-Gen-eral of the Export PromotionCouncil for EoUs and SEZs.

SEZ developers have beendemanding infrastructure sta-tus, but the central bank isyet to decide on this. “Giventhat land records for SEZs areclean, overseas lenders mightfind it attractive to lend,” saidTapan Sangal, senior manag-er with PriceWaterhouseC-oopers, an international con-sulting firm.

The Centre, which reviewedECB policy, has also decided toallow realty firms that are de-veloping an integrated town-ship to access this route for afurther six months till Decem-ber 2009. The policy was duefor review in June 2009.

In another decision, anycompany breaching the ECBpolicy and investigation by theReserve Bank of India or theEnforcement Directorate willnot be allowed to access the au-tomatic route. Even if borrow-ing by such corporates qualify

under the automatic route, theywill have get prior permissionbefore tapping ECB.

The government also re-laxed a condition for non-bank-ing finance companies(NBFCs) which are exclusivelyinvolved in financing infra-structure sector. At present, fi-nancial institutions makingECB loans to such NBFCs haveto lend non-ECB loans in theratio of 3:1. That is, for every$1 lent as ECB, the financialinstitutions’ non-ECB lendingshould be at least $3.

SEZ developers may now access ECB route for capital needs

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