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In Touch - Mcci - Oct 11
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In this issue4 President’s message
4 Chamber’s activities
•Meeting with Belgian Ambassador
•MCCI & MMA Video Discussion on “ It’s not my problem”
4 General Committee
4 Article on MCCI featured in Business India
4 SPOT LIGHT Public Private Partnership (PPP)
4 Economic Review
Volume 25 – No.7 – October 2011
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2
CHAMBER’SACTIVITIES
18thOctober2011
MeetingwithAmbassadorforBelgium:
The Chamber had organised an
interactionmeetingwith the visiting
Delegation from Belgium on 18th
October 2011 in the Conference
roomoftheChamber.
H.E.Mr.Pierre Vaesen, Ambassador
for Belgium, H.E.Mr.Karl Van Den
Bossche, the new Consul General
for Belgium, Mr.Jayant Nadigar,
Trade Commissioner, Bangalore Mrs.
Fruithof, Future Trade Commissioner
for Chennai andMr.Raj Khalid, India
Representative of Port Antwerp
participated in the meeting.
Mr.T.T.Srinivasaraghavan, President,
MCCI and Mr.T.Shivaraman, Vice-
President,MCCIalongwiththeother
membersofMCCIwerepresent.
Mr.T.T.Srinivasaraghavan, President
welcomed the Ambassador and
his team. He gave an overview of
the Chamber’s various activities.
The President highlighted that the
Madras Chamber was one of the
oldest chambers in the Country and
had recently completed175yearsof
service to the trade and industryon
29thSeptember2011.Thehistoryof
the Chamber began with European
connections and after independence
Indianstookoverthepositionandgot
involved in theMCCI’s activities. He
explained that themembership base
isstrongandnearlyabout70%ofthe
members are in the manufacturing
and the rest of them include
professional firms, service and other
industries.Mostofourmanufacturing
companies have business with the
European market. In Tamil Nadu,
particularlyChennaihasanumberof
automobile and auto components
manufacturing companies and
most of the leading companies are
membersoftheChamber.Hefurther
highlightedtothemthattheMadras
Chamberwas instrumental insetting
uptheChennaiPortandwecontinue
tobeactivelyinvolvedintryingtosort
thecurrentissuesconcerningtheport
andrepresenttheinterestsoftraders
andexporters.Infactwehadtakenup
adetailedstudyonPortinfrastructure
which was completed and findings
tobepresented formorediscussion.
The President then requested the
Ambassadortoaddress.
The Ambassador appreciated the
Madras Chamber’s role towards the
developmentofTamilNadueconomy
aswellasnationaleconomy.Hesaid,
Belgiumwhichhadahighlydiversified
economy was keen to strengthen
bilateral trade ties with India.
Currently there were 150 Belgian
companies that had investments in
India and about half the number of
IndiancompaniesinBelgiumandtheir
proportionwasincreasing.Flanders
have a trade office in Bangalore.
Around20outof250Belgium firms
haveinvestedinChennaiandatrade
office representing Brussles and
Wallonia regions would soon be in
Chennai. The main purpose of the
office is to attract investments into
Belgium. The Ambassador told that
theyarereadytolendahelpinghand
toIndianfirmsinterestedinsettingup
their units in Belgium particularly in
areas like logistics,carassembly,bio-
technology and infrastructure sector.
The Consul General mentioned that
visaswereissuedwithin24hoursand
said they had issued 35000 visas till
September2011andexpectedtoissue
another10000visasbeforeDecember
2011. TheAmbassador invited SMEs
to set up their units in Belgium and
business licenses would be issued
within 3 to 4 working days and
there was no minimum investment
stipulated. The Ambassador
informed that a delegation headed
byKrisPeeters,Minister–Presidentof
theFlandersregionsalongwitha35
memberteamwouldbevisitingIndia
andtheyareplanningtovisitChennai
between 12 and 18th November
2011. Theareasofbusiness interest
for the delegation from Flanders are
utilising Port Antwerp, Chemicals,
pharmaceuticals, biotechnology,
logistics,automotivesandrenewable
energy. The Ambassador also
informed that India and Belgium
alreadyhaveadoubletaxationtreaty
in place, the proposed Free Trade
agreementbetweenIndiaandtheEU
couldsignificantly improvetradeand
theFTAshouldbe readyby theyear
end.
Mr.RajKhalidrequestedthemembers
to consider setting up warehouses
inthePortofAntwerpwhichhetold
is very cost effective. From there,
the products could be traded locally
andcouldbesenttootherEuropean
countriesaswell.
The Ambassador and his team of
officials then interacted with the
members and the meeting was
concludedwithvoteofthanks.
ThePresidentpresentedMCCICoffee
TableBook–ChampioningEnterprise
totheAmbassador.
20thOctober2011:
MCCI&MMA–Videodiscussion“That’snotmyproblem”:
The monthly video discussion
meeting was organised on 20th
October in the Conference room of
theChamber. Thetitle for thevideo
discussion was -“That’s not my
problem”.Ms.SandhyaSankar,awell
knowncorporatetrainercoordinated
thediscussion.
A lively animated video that
highlighted the need for employees
to put out small office fires before
theyblazeoutofcontrolwasshown.
Throughthevideo,andthediscussions
thatfollowedtheimportanceoftaking
responsibility by acknowledging
problems, and taking action before
a crisis is reached is stressed upon.
The video demonstrated, what can
happenwhenwearenotpersonally
motivated to fix a problem before
it gets out of hand with escalating
consequences.Thinkingthat‘itisnot
myproblem’couldleadtounforeseen
consequences.Thekeyissueswere:
- Howtoseeneedsandtake
responsibility
- Howtofaceuptheproblems
- Howtoacceptandmanage
responsibility
About 25 members representing
both organisations (MCCI & MMA)
participated.
The 4th meeting of the General
Committee met on 15th October in
the Conference room of MCCI. The
President and 14 members of the
General Committee attended the
meeting and the following matters
werediscussed.
The members of the Committee
appreciated the President and
the Chamber Secretariat for their
wonderfulwork done in connection
with the 175th year celebrations
heldon29thSeptember2011atPark
SheratonHotel.ThePresidentthanked
themembersfortheirvaluablesupport
andfortheirpresenceinthefunction
function and also for contributing
towards advertorial support in the
Hindu.
With regard to the progress of skill
development centre the members
were updated. The Committeewas
informed that basic courses like
fitter, electrician, computer skills, soft
skills and week end courses for the
engineering students have already
been initiated and themodules and
syllabushavealsobeenworkedout.
Work tables, drilling machines and
other required infrastructure facilities
weredevelopedat thepremisesand
thecoursewouldbecommencedby
this month end. It was informed
that after local bodies’ elections,
Mr.Pradhan and Ms.K.Saraswathi
wouldmeetthe localvillageofficials,
Panchayat officials and other
connected people in this regard.
The members felt that the Chamber
could try and purchase the other
vacantlandwhichisavailablebehind
MCCI land at Koppur Village which
mightbeusefulforexpansionofSkill
DevelopmentCentreata laterstage.
Itwasagreedtoexplorethepossibility
and Mr.S.G.Prabhakaran, Member
of theCommitteeofferedhishelpto
negotiateinthisregard.
MCCI Port Study and the present
problems in Chennai Port were
discussedatthemeeting.Mr.Krishnan,
ChairmanoftheLogisticsCommittee
apprised themembers that the exim
tradewasgreatlyaffectedbyimposing
congestion surcharge.Operations of
the Chennai Port and related issues
wouldbediscussed&highlightedat
theproposedPortSeminar.
The President reported various
meetings organised by the Chamber
duringthemonth.
The 6 new companies joined as
members were approved and the
namesofthenewmemberswouldbe
publishedelsewhereinthebulletin.
CHAMBER’SACTIVITIES
GENERALCOMMITTEE
3
15thOctober2011:
SpecialarticleonMCCIfeaturedinBusinessIndia-13thNovemberissue
4
SpecialarticleonMCCIfeaturedinBusinessIndia-13thNovemberissue
5
7
COMMERCIALHOLIDAYS2012
1stJanuary Sunday NewYear’sDay
15thJanuary Sunday Pongal
16thJanuary Monday ThiruvalluvarDay
26thJanuary Thursday RepublicDay
6thApril Friday GoodFriday
13thApril Friday TamilNewYear’sDay
1stMay Tuesday MayDay
15thAugust Wednesday IndependenceDay
20thAugust Monday Ramzan
19thSeptember Wednesday VinayakaChathurthi
2ndOctober Tuesday GandhiJayanthi
23rdOctober Tuesday AyudhaPooja
13thNovember Tuesday Deepavali
25thDecember Tuesday Christmas
CharterPartyHolidays2012
15thJanuary Sunday Pongal
26thJanuary Thursday RepublicDay
1stMay Tuesday MayDay
15thAugust Wednesday IndependenceDay
2ndOctober Tuesday GandhiJayanthi
13thNovember Tuesday Deepavali
andanyotherdaywhichtheChennaiPortTrustdeclaresasaclosedholidayduringtheyear.
Note:TheseCharterPartyHolidayswillalsobeapplicabletoEnnorePort.
SPOTLIGHT
Public Private Partnerships have
increasinglyemergedasaviablemode
of developing public infrastructure
through private sector resources.
The 12th five year plan envisages a
threefold jump in the size of private
investments in infrastructure sectors,
from about Rs 6 lakh Crore in the
11thfiveyearplantooverRs20lakh
Crore in the 12th plan. In addition,
there has been increasing interest
in experimenting with PPPs in social
sectors such as healthcare and
education.
PPPs have historically evolved
in India to overcome the lack of
public funds for addressing chronic
infrastructure investment deficit. The
firstPPPs followedasaconsequence
of economic liberalization through
the National Highway Development
Program–PhaseIin1999,whichhas
sincethengrowninscopeandsizeto
cover most sectors across transport,
logisticsandutilities.
Therecentdraftforconsultationofa
National Public Private Partnerships
Policy highlights certain defining
featuresofPPPsincludinginvestments
byprivatesector,optimalrisksharing
betweenthepublicandprivatesector,
performance linked payments to the
privatesector,outcomespecifications
among others. A quick comparison
across international definitions of
PPPs reveals that the
Indian approach broadly
coincides with best
international definitions
andpractices.
An analysis of the costs
incurred, risks borne and
potentialreturnsorbenefits
forallthestakeholdersina
PPPprojectispresentedin
Figure2.
To enable the next wave
of investments through
PublicPrivatePartnerships,
this articleoutlines six key
success factors that need
tobeenhanced.
PublicSectorCapacity
Theroleofthepublicsector
in any public private partnership is
critical in enabling the project from
achieving its objectives. Apart from
being a partner, the public sector
entity also has the responsibility
to govern and monitor the entire
process. Given the very long
gestation periods of infrastructure
projects,thisrequiresasustainedlevel
of political commitment irrespective
of the particular government in
power.Similarlyimportantisastrong
commitment from the bureaucracy
that implements such projects on
PUBLICPRIVATEPARTNERSHIPS–THENEXTWAVE
8
ByArslanAziz,LeadConsultant–PublicPolicy,AthenaInfonomicsIndiaPvt.Ltd.
11th plan
20.6
Total Central State Private
Sector-wise breakup
TelecommunicationsAirport
Port
Water Sanitation&Irrigation
Power
Roads
Gas
Gas
Railways
7.7
6.7 6.2
12th plan
42.7
Total Central State Private
Sector-wise breakup
Telecommunications
AirportPort
Water Sanitation&Irrigation
Power
Roads
Railways
12
9.7 21
Figure1:InfrastructureSpendingTargetsin11thand12thFiveyearplans
SPOTLIGHT
the government’s behalf to ensure
transparency and objectivity of the
process.
Adequate and coordinated planning
across different central and state
governments and the associated
ministries is essential for smooth
functioning of a process. A national
PPP policy can outline a mature
rationale for PPPs, as well as clearly
outline the roles and responsibilities
of different agencies to improve
coordinationacrossagencies.
Public Private Partnerships involve a
range of stakeholders and affected
parties whose interests diverge.
Managingmultiple stakeholders and
aligning their incentives towards a
common goal requires a pragmatic
approach that appreciates the
nuancesofthecomplexitiesinvolved.
A thorough technical understanding
of the feasibility, viability, social
and environmental impact is an
essentialstartingpoint for thepublic
sector. Consultants, independent
engineers, financial consultants and
transaction advisors are engaged
by the government agency to assist
in this process. There is a need for
an objective and efficient process
of leveraging the expertise of such
consultants and translate it into
effectivestructuringofcontracts.
PrivateSectorCapacity
Harnessing private sector efficiency
and technical competence is one of
thekey factorsof amature rationale
for implementing infrastructure
projects through Public Private
Partnerships.Abroadanddeepshelf
of commercially viable projects need
to be identified and information be
made publicly available. Adequate
checks and balancesmust be put in
place to ensure the private sectors
deliver on the promised outcomes
withthedesiredqualityofservice.
AvailabilityofAdequateFinancing
While on the one hand a quantum
leap in total investments are
envisaged in infrastructure in the
12th Five Year Plan, on the other
hand, the supplyofboth
debtandequityarenear
their upper limits in the
current financial system.
Theinherentasset-liability
mismatch issue for long-
term infrastructure loans,
lackofadeepand liquid
bondmarket,theinability
of infrastructure projects
fromreceivinginvestment
grade rating that limits
thepooloffundsthatcan
invest in them,are some
of the issues that need
tobeurgentlyresolvedif
adequate debt financing
istobecomeavailable.
RiskSharing
Exhaustive identification of risks,
allocation to party best suited to
manageormitigatethat risk,aswell
asaccuratepricingofrisksisessential
toany successfulproject.Early stage
risksduring the landacquisition and
getting requisite clearances from
different regulatory authorities are
best managed by the sponsoring
government authority. Private sector
developers as well as financiers can
splittherisksinthesubsequentstages
of the project depending on the
pricingoftherisks.
SocialInclusion
Increasing participation of private
sector in providing what were
traditionallyconsideredpublicservices
requires a careful management of
the social inclusion issue. Existing
experience suggests that many
projects have suffered long delays
duetorightsofaffectedcommunities
not being managed appropriately.
9
Public Sector
� Project Identi�cation� Monitoring
� Political Risk?� Regulatory Risk?� Residual Asset value risk
Cost Incurred
� Ful�lment of mandate to provide public infrastructure
Return/Bene�t
Risk Borne
Public /User
� Tax� User changes� Displacement
� Environmental/ social impact� Exclusion
Cost Incurred
� Usage of quality infrastructure� Time and cost savings� Employment opportunities� Improved living standard
Return/Bene�t
Risk Borne
Lenders
� Cost of capital� Opportunity Cost
� Financial viablity risk� Currency Risk?� Asset - liability tenure mismatch
Cost Incurred
� Return on investment
Return/Bene�t
Risk
Private developer
� Opportunity cost of investment� Debt repayments� Technical & human resourses
� Financial risk� Developmental risk� Operational risk� Technology risk� Non-pro�tionam force majeure risk
Cost Incurred
� Return on investment� Increased technical competence� Enhanced brand equity
Return/Bene�t
Risk Borne
VGF
Debt Protection
Contract
Access
Tax Debt Repayments
User charges
Figure2:PPPStakeholderanalysis
Disputes regardinguser charges and
compensation given to land owners
havestalledordelayedmanyprojects.
Ifsocialsectorssuchashealthcareand
educationarebroughtintotheambit
ofPublicPrivatePartnerships, itmust
be ensured that addressing problem
oflackofqualitydoesnotresultinthe
creationofaproblemofexclusion.
Sustainability
Increasing population and depleting
natural resources in the country
makesustainabilityanurgentpriority.
Internalizingthenegativeexternalities
of large infrastructure projects is
a daunting yet necessary task.
Depletingwater resources,pollution,
deforestation and adverse impact
on biodiversity are costs that need
to be factored into the total project
cost. While this would decrease
an individual project’s commercial
viability, in the long-run and at
a macro-level, such an approach
wouldcontributetomoresustainable
development.
Conclusion
Public Private Partnerships have
the potential to be a significant
contributor to delivering inclusive
developmenttothenation.However,
the process needs to be diligently
planned and executed to ensure the
potential is realized. Focus on the
six success factors described in this
articlecanhelpdifferentstakeholders
to identifycapacitiesthatneedtobe
built.
10
SPOTLIGHT
TheScopeofPPPModelThere are more than 6500 clusters
runningpanIndiabutonlyaround450
clusters are recognized and getting
governmentsupport.Thereare490,000
firms operating, employing 75,00,000
employment with annual output of
Rs.157,000 crores. However even
gettingrecognitionbygovernmentand
having such a enormous contribution
to the economy, they aren’t properly
privilegedtoexplore their fullpotential
for grown up themselves. They have
stillmajorchallengesremainwiththem
like limited size and scale, obsolete
technology, non-availability of finance,
traditional marketing systems, inability
to meet environmental compliances,
Poorinfrastructureetc.
ASSOCHAM believes certain parts
of these major challenges could be
covered by adopting PPP (Public
Private Partnership) Model in Cluster
development.
PPM Model is one of the best global
practices and well acceptable model
worldwide. It is one of the most
successful model not only inn India
evenwell acceptable inworld also. It
has been implementing by and large
all sectors more particularly telecom,
construction,Infrastructure,roadways,
agriculture, education etc., Wherever
this model has been implemented,
most of the places showed fabulous
result,betterproductivity&profitability,
enhanced operational efficiency,
managerial expertise and many more
benefits.PPPmodelisnotonlyassisting
andassuringahighdegreeofcomfort
level to funding institution for infusing
the adequate fund in cluster zone but
alsocreatinganewavenuetoallurePE/
VCinvestorandFDIetc.
AboutPPPModel:Thereisnostandardorformalconcept
of PPP model. However, it broadly
refers to as a contractual long term
partnership between Government
and one or more private players on
particularprojectandspeciallyfocusing
on financing, designing, implementing
and operating facilities and services
which are traditionally provided by
government/publicenterprises.
These collaborative ventures are built
around the expertise and capacity of
the project partners and are based
on a contractual agreement, which
ensures appropriate and mutually
agreedallocationofresources,risksand
returns. This approach of developing
and operating public utilities and
infrastructure by the private sector
under terms and conditions agreeable
toboththegovernmentandtheprivate
sectoriscalledPPPorP3model.
RoleandResponsibilitiesofPublic/PrivateSector:PPPModel, it doesn’tmean that there
is reduced and less responsibility and
accountability has with government.
PPPMODELINCLUSTERDEVELOPMENT(Source:ASSOCHAMPublicationonClusterDevelopment)
Governmentactivelyremainsinvolved
throughout the project life cycle.
Governmentisverymuchaccountable
tomeetitscommittedservicestowards
its SME stakeholders or beneficiaries.
The responsibilities also remain with
Government to govern and regulate
thepricestability,robustcompetition,
adequateandtimelydeliveryofservices
tocustomersandcosteffectivenessin
themarket.
The major objective of such model
is to bring more value addition and
effectiveness by synergizing the best
partoftwoormorepartners–Public
enterprisesandprivateagenciesunder
single umbrella more particularly
throughintegrationandcrosstransfer
of private and public sectors skills,
expertiseknowledge,bestexperiences
etc.,contributedandsharedwithSME
entrepreneurs.
11
SPOTLIGHT
SMEEntrepreneurs
GovernmentEnterprises
Private Agencies
(Comprehensiverole-playofPPPModelandshowsabilitytobringkeystakeholderstogether
stronglyPositionsintoclusterstomakeapurposefulinterventionintheSMEsegment)
12
PPPModelinClusterDevelopment:There are three major components of
PPP model during implementation in
clusterdevelopment.Theseare:
• Government/PublicEnterprises
• PrivateAgencies
• SMEStakeholders
UnderPPPmodel,Governmentisdefined
as facilitator / enabler and committed
to provide stable governance, citizen
support with economic imbalanced,
social unrest and politics free
environment to private agencies and
otherengagedentrepreneurs.Whereas
Private players are defined as financer,
builder and operator of services or
facilities and committed to bring
amongeffectiveoperationalefficiencies,
innovative methodology, appropriate
set up skill, managerial effectiveness,
globalbestpracticesetcamongclusters.
SME stakeholders who are defined as
targetedbeneficiariesofthismodel.
There are major 5 important steps
towards implementation of PPP
methodology:
ProjectExecution
ProjectFinancing
ProjectDevelopment
CapacityBuilding
NeedAssessmentofProject
WhatGovernmentsshoulddoinaPPPproject• MaintainTransparencyshould
paramount.
• Protectofficerswhotakethe
initiativeonPPP;
• Aligntheeconomicinterest
ofallSMEStakeholders;
• DefinePPPprojecton
aholisticbasis;
• InductthePrivatesectoraspartners;
• Establishframeworksthat
permitfailures;and
• Encouragepluralityofapproaches.
….andwhatgovernmentsshouldnotdo• Offeraprojectwithout
detailedprojectdevelopment;
• Makecommitmentsthatcannot
bekept;
• Changegoalpostsafterawardof
concessionandrevisit
projectdesign;
• Notrecognizethateachprojectisa
businessandnotamereasset;
• Regretthatthebusinessisprofitable
withintheframeworkagreement;
• Superimposepublicprocesson
privateinitiatives;and
• Notfullyexploitthecapacityofthe
businesstogrowninthestate
Awarmwelcometoourfollowingnewmembers:
BSD&AssociatesChartered Accountant firm
ExpressInfrastructurePvt.Ltd.Leasing, Construction and Malls
RajPetroSpecialitiesPvt.Ltd.
Manufacturer and exporter for petroleum speciality products
SatvaLogisticsPvt.Ltd.Logistics Services
WalkerChandiok&Co.Chartered Accountant Firm
WinsarInfosoftPvtLtd.Software development
17
14
ECONOMICREVIEW
1. Macroeconomy1.1GrowthinIndustrialProductionFurtherSlipsIndia’s industrialoutputfurtherslowed
down in September to 1.9 percent on
yearonyearbasis.Thegrowthratefor
August too was revised downwards
from 4.1 per cent to 3.6 percent,
accordingtoofficial figuresreleasedby
Central Statistical Organization (CSO)
on11thNovember,2011.Growthrate
of industrial production has declined
mainly because of negative growth in
mining output and poor performance
in manufacturing sector. Electricity
generationgrewatahealthy9percent.
With this, the slump in industrial
production has continued for three
consecutivemonthsandthiswillmakeit
furtherdifficulttoachievethetargeted8
percenteconomicgrowthinthecurrent
fiscal. In July, the industrial output
growth slumped to 3.8 per cent. This
wasfollowedby3.6percentinAugust
andnow1.9percentinSeptember.
As per the new series with base year
2004-05,theIIPregistered1.9percent
growthinSeptemberasagainst6.1per
cent recorded during the samemonth
ofthepreviousyear.Consequently,the
first half (April-September) of 2011-12
fiscalwitnessedthecumulativegrowth
ofIIPat5.0percentasagainst8.2per
centduringthecorrespondingperiodof
thepreviousyear.
Sectorwise, theMiningoutput further
slumpedby5.6percent inSeptember,
registering -1.0 per cent cumulative
Contents
1. Macroeconomy 1.1 IndustrialProductioninSeptember2011
1.2 WholesalePricesofPrimaryArticlesandEnergy
1.3 IndirectTaxRevenueinOctoberDropsby2.5percent
1.4TradeDeficitWidensinOctober
2.CorporateSector
2.1 AutomobileIndustryinRed
2.2 Highinputcostsaffectsaviationsector
3.GlobalDevelopments
4.1 EmergingEconomiesareSeenasSaviorsofEurope
4.2 InflationinChinaCoolsinOctober
4.DataAppendix
15
ECONOMICREVIEW
growthinthefirstsixmonthsof2011-
12. Manufacturing production also
grewatasluggishrateof2.1percentin
September.Manufacturingsectorwhich,
constitutesoverthree-fourthsoftheIIP
index,registeredcumulativeagrowthof
5.4percentinApril-Septemberperiod.
On the other hand, Electricity output
continued to register a decent growth
of9.0percentduringthemonthunder
review.Theelectricitysectorregistereda
cumulativegrowthof9.4percentsofar
inthecurrentfiscal.
As regards the use-based classification
of industries, capital goods industries
posted the poorest growthduring the
month under review. Production of
capital goods declined by 6.8 percent
productiongrowthascomparedto7.2
percentduringthesamemonthlastyear.
Capitalgoodsproductioninthefirstsix
monthsofthecurrentfiscalincreasedby
mere4.6percentascomparedto16.4
percentduringcorrespondingperiodin
thepreviousyear.
Output of intermediate goods
industries increased by mere 1.5
percentascomparedto4.6percentin
September2010.Thefirsthalfof2011-
12 fiscal has seen the production of
intermediate goodsmere increased by
1.4percent.ProductionofBasicgoods,
which comprises of nearly half the
total weightage of IIP Index, showed
somewhat decent growth rate of 4.5
percent compared to 3.5 per cent
duringthelastyear.
To add to the above, production of
Consumernon-durablegoodsdeclined
by 1.3 per cent compared to 5.8 per
cent inSeptember last year.Growth in
the production of consumer durable
goodstoohassloweddowndrastically.
PleasereferTables1and2fordetails.
March Mining Manufacturing Electricity General
2010- 2011 2010- 2011 2010- 2011 2010- 2011 2011- 2012 2011- 2012 2011- 2012 2011- 2012
September 4.3 -5.6 6.9 2.1 4.3 -5.6 6.9 2.1
Apr-Sep 7.2 -1 8.8 5.4 7.2 -1 8.8 5.4
Table1IndexofIndustrialProduction
(Sectoral,base2004-05)
Table2IndexofIndustrialProduction
(Usebased,base2004-05)
Month Basic Goods Capital Intermediate Consumer Consumer Consumer Goods Goods Goods Durables Non- durables
2010- 2011- 2010- 2011- 2010- 2011- 2010- 2011 2010- 2011 2010- 2011 2011 2012 2011 2012 2011- 2012 2011- 2012 2011- 2012 2011 2012
September 3.5 4.5 7.2 -6.8 4.6 1.5 9.7 3.5 14.2 8.7 5.8 -1.3
Apr- Sep 4.7 6.9 16.4 4.6 8.4 1.4 9.1 4.5 15.9 5.2 3.8 3.8
16
ECONOMICREVIEW
1.2WholesalePricesofPrimaryArticlesandEnergyThewholesalepriceindex(WPI) forthe
week ended on 29th October 2011
indicated a state of no respite from
hyper inflationary pressures to both
households and Corporates. While
the price index of primary articles
declined insignificantly by 0.1 percent
over that week, the price index of
fuel & power remained unchanged.
Prices of food articles declined slightly
during the week mainly due to the
lesser rise in the prices of fish-inland,
bajra,fruitsandvegetables,moongand
spices.Atthesametime,pricesofgram,
egg, marine fish, ragi and chicken
along with others have moved up.
Build-up in overall inflation during the
week,financialyearsofar,andyearon
yeargrowthrateisgiveninTable3.
1.3IndirectTaxRevenueinOctoberDropsby2.5percentIndirect tax collections in October
droppedby2.5%to30,278crore.This
was mainly attributed to the slowing
economy and cut in customs and
excise duties on petroleum products a
few months ago. Indirect tax revenue
comprises revenues raised from
customs, excise and service taxes.
DuringOctober2011,realisationsfrom
customsdroppedby11.6percent.The
central excise collections during the
samemonthdropped5.3percent.On
the other hand, service tax collections
duringthemonthroseby18.4percent.
In June, the government had slashed
customs and central excise duties to
providea relief to consumers from the
hikeinpetrolpricesthatmonth.Thecut
meant an annual lossof. 49,000 crore
tothecentralexchequer.However,ifwe
consider the 2011-12 fiscal so far, the
indirect tax collection showed 17.8
percentincreaseto2.01lakhcrorefrom
1.70lakhcroreduringthecorresponding
period in the last financial year. The
increase during the first sevenmonths
ofthecurrent fiscalwasonaccountof
highercollectionsfromcustoms,central
excise and service tax which rose by
16.6 percent, 10.6 percent and 33.6
percent respectively. This development
confirmsthefearsofslowdownandthe
need for thegovernment toprune its
non-developmentexpenditure.
1.4TradeDeficitWidensinOctoberIndia’s exports growth slumped in
Table3WholesalePriceIndexandRatesofInflation
(BaseYear2004-05)
Commodities Weight WPI LatestWeekover Buildupform Yearonyear 52week/Major week endMarch AverageGroups/Groups/Sub-Groups Oct29,2010 2011- 2010- 2011- 2010- 2010- 2011- 2012 2011 2012 2011 2011 2012PrimaryArticles 20.12 204.7 0.44 -0.15 10.26 8.65 16.71 11.43 13.86
FoodArticles 14.34 201.7 0.11 -0.25 9.73 12.62 12.68 11.81 10.57Non-Food 4.26 177.5 0.18 0.17 10.76 -7.41 24.29 6.41 21.39ArticlesFuel&Power 14.91 169.8 0.00 0.00 5.85 7.54 10.67 14.50 12.52
17
October,asdemandslackenedfromthe
developedmarkets. Exports grew12.4
percentto$19.9billioninOctoberfrom
ayearago,muchslowerthan36.5%
in September and 52 percent in
the April-September period. The
slowdown was across the board.
Exports in the first seven months of
the fiscal came in at $179.8 billion,
representing46%growth,whileimports
stoodat$273.5billion,increasing31%
overthesameperiodofthepreviousfiscal.
Whileexportsintheremainingmonths
ofthefiscalareexpectedtoberelatively
low, compared with the high growth
phaseinthefirsthalfofthefiscal,high
global oil prices and fertilizer imports
willcheckasharpslowdowninimports,
putting pressure on the country’s
current account deficit and balance of
payments.
As a direct result, trade deficit for
October2011remainedhighasexports
stood at $19.6 billion, while imports
increased36.7percentto$39.5billion.
The country’s trade deficit climbed
to $93.7 billion in the April-October
period, against$72billion in the year-
agoperiod.At this rate, India’sannual
tradedeficit is expected to reach$150
billion.
Further, the current account deficit is
likelytobeabout3percentofGDP.The
debtcrisisinthe
European Union has started resulting
inlowerdemandfromthezone.Export
ofelectronicgoods,whichgomostlyto
theregion,dropped18percentdropin
October.
2. Corporate Sector
2.1AutomobileIndustryinRedPassenger car sales in India fell 23.8
percent in October on year over year
basis. This is thebiggest monthly
percentage decline since December
2000.Risinginterestratesandfuelcosts,
coupled with the fallout of the strike
at Maruti-Suzuki, India’s largest car
manufacturer, drove down sales for a
fourth consecutive month. The two-
wheeler segment, another major
barometerofconsumersentiment,also
stalled, posting a marginal monthly
increaseofjust2percentinOctober.
“Theautoindustryisfacingthedouble
whammy of high interest rates and
rising fuel prices. For any recovery to
happen, interest rates have to come
downandfuelpricesneedtocool,”said
Vishnu Mathur, director-general of
the Society of Indian Automobile
Manufacturers. However, truck and
bussalesheldup,rising19%to61,800
vehicles, helpedby robustdemand for
vehicles from Tata Motors and Ashok
Leyland.
SIAM has cut its sales growth forecast
forthecurrentfinancialyeartobetween
2and4%fromaninitialforecastof16-
18%.“Demandforpetrolcarshasbeen
hit hard. Though customers are keen
to purchase diesel cars, production is
amajor constraint,”Mathur said. The
automobile market relies heavily on
demand from the middle class whose
rankshavebeengrowing.TheReserve
Bank of India increased interest rates
by25basispoints lastmonth,making
itmoreexpensive to take loans tobuy
cars.
“Traditionally sales get a boost in the
festivalseason,butthisyearthegeneral
weak customer sentiment played
spoilsport with the market. We don’t
expectanymajorupswinginthenear
future as uncertain macro economic
environmentwillcontinuetoaffectthe
industry,” said Hyundai Motor India
source.ThestrikeatMarutiduring the
festivalseasonalsoprovedtobean
impediment. The company’s profits
ECONOMICREVIEW
18
dipped by up to 60% for the quarter
endedSeptember.Thecompanyposted
a55%dropinproductionto50,487cars
lastmonth,pullingdownthegrowth
ratefortheindustry.
2.2 High Input CostsAffectsAviationSectorIncreasing fuel prices, unfavourable
currency movements, rising interest
rates, geopolitical uncertainty at the
macro level have affected the civil
aviation industry in India. Apart from
the ailing public sector Air India, the
Kingfisher Airlines followed by Jet
airlines and Spice Jet has all posted
heavylossesintheJuly-September2011
quarter. Leaving apart the infamous
mismanagement and repeated
governmentbailoutsofthepublicsector
airliner ‘Air India’s’ case, the financial
difficultiesfacedbytheKingfisherairlines
andthepoor resultspostedby theJet
airlines and Spice Jet presently needs
policy attention. The industry, mainly
owing to slowerdemandgrowth, low
degree of pricing power coupledwith
diversionofresourceshaveregistered
financiallosses.
3. Global Developments4.1EmergingEconomiesareSeenasSaviorsofEurope
Christine Lagarde, the head of the
International Monetary Fund, told a
financialforuminBeijingthatEuropean
plans to bolster a rescue package
for Greece were a “step in the right
direction”,but that the outlook for the
world economy remained dangerous
and uncertain. Advanced economies
havea“specialresponsibility”torestore
ECONOMICREVIEW
LatestFinancialInformation
Item Oct.28,2011 Nov.4,2011# PercentageChange
DepositsofScheduledCommercial 350870 341527 -2.7
BankswithRBI(Rs.Crore)
ForeignCurrencyAssetsofRBI(Rs.Crore) 1390514 1378936 -0.8
AdvancesofRBItotheCentral
Government(Rs.Crore) 36153 52063 44.0
AdvancesofRBItotheScheduled
CommercialBanks(Rs.Crore) 3745 870 -76.8
BSESensitiveIndexandNSENiftyIndexofOrdinarySharePrices
Index Oct.28,2011 Nov.4,2011# PercentageChange
BSESENSEX(1978-79=100) 17593.7 17192.8 -2.3
S&PCNXNIFTY(3.11.1995=1000) 5292.3 5168.9 -2.3
4. Data Appendix
confidenceandliftgrowth,whileChina
should boost consumption and allow
itscurrencytorise.
“Thereareclearlycloudsonthehorizon.
Cloudsonthehorizonparticularlyinthe
advancedeconomiesandparticularlyso
intheEuropeanUnionandtheUnited
States,”Lagardesaid.“Oursenseisthat
ifwedonotactboldlyandifwedonot
acttogether,theeconomyaroundthe
worldrunstheriskofdownwardspiral
of uncertainty, financial instability and
potential collapse of global demand...
we could run the risk of what some
commentators are already calling the
lostdecade.”
The “lost decade” reference carries
echoes of Japan’s experience of
persistent deflation, mounting debts
and economic impotence through
the 1990s and beyond after its real
estate bubble burst — an outcome
many analysts fear could be repeated
giventhedebtandpropertyoriginsof
Europe’sproblems.
The solution for the ongoing public
debt crisis in Europe,which has seen
theprimeministersofGreeceandItaly
forced to announce plan to resign
in the past week, is in the form of
the European Union boosting the
European Financial Stability Fund
(EFSF)toaround1trillioneurosfromits
present€440billion.
Also,thepolicymakersarehopefulthat
bigemergingeconomies,ledbyChina,
will invest some of their vast foreign
exchangereservestohelpendthedebt
crisis.
But there is scepticism in emerging
economies, where public opinion is
firmlyagainstbailingoutcountriesthat
still enjoy far higher average incomes.
Also, emerging economies including
China opine that European plans are
“notcompleteandnotfirm”.
Thelackofpoliticalwill inEuropeand
a lack of coordination between EU
membersisalsoseenasotherhurdles.
BeforearrivinginBeijing,Lagardehad
spent two days inMoscow, trying to
convinceRussia tochip in someof its
petrodollarstoboostbailoutfundsfor
theeurozone.Buttheso-calledBRIC
nations,comprisingBrazil,Russia,India
andChina,have so farbeen reluctant
to invest directly in Europe’s rescue
vehicle,preferringtocontributeviathe
IMF.
4.2InflationinChinaCoolsinOctober
China’sannualinflationratefellsharply
inOctober to5.5percent ina further
pullback from July’s three-year peak,
givingBeijingmore room to fine-tune
policytohelpaneconomyfeeling
thechillofaglobalslowdown.
Otherdata, including figures showing
industrial output in October grew
at its weakest annual pace in a year,
provided the latest evidence of a
modest slowdown in the world’s
second-biggesteconomy.
Industrial output rose in October by
13.2percentfromayearearlier,slightly
belowexpectationsfora13.4%riseand
theweakestpacesinceOctober2010,
suggestingfactorieswerebearingthe
bruntoftheeconomicslowdown.
Inflation fell from 6.1 percent in
September and marked the third
straightdeclinesinceapeakof6.5%in
July,bolsteringexpectations thatprice
pressureswereonasoliddowntrend.
19
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SeminaronDevelopmentofPortsinTamilNadu17thDecember2011
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