Economy Watch

Economy News

Indian Economy and Policy Watch as on 12-May-2008

India-UK investment meet to take place on June 16

India, Canada to hold talks on FTA

CII drafts agenda to sustain 25% growth

ADB should not ignore public sector: FM

Russia keen to invest in various sectors in Assam

ASEAN to set up Asia Fund to tackle financial crisis

Govt. accords autonomy to Ratna PSCs for setting employee perks

SBI hikes interest rates on FCNR, NRE deposits

SEBI lowers margin requirement for futures contract

Govt. to pump in Rs 1 bn in ECGC

Inflation controlling measures take time to give results: PM

CII calls for global measures to tackle inflation

CII inks MoU with Chinese enterprises for IPR protection

Polish Embassy eyes USD 3 bn trade with India

Onion exports likely to rise by 12% in April

Govt. can take more measures to contain inflation: Ahluwalia

ADB to provide USD 500 million to tackle food crisis

SC yet to pass interim order on foreign stake in local banks

SEBI directs NSDL, CDSL to settle issues

Govt. to sell 5-10% stake in profitable PSUs

India to challenge WTO panel ruling on amended CBD

RBI to invest USD 5 bn forex reserves in infrastructure projects

Economy can grow up to 8.9% during 2008-09: NCAER

MCD seals 1,496 New Delhi properties

RBI to intensify banking services in North-East

Checking inflation, controlling price rise is priority of the govt.: Ashwani Kumar

Inflation

The wholesale price index soared to 7.61% for the week ended Apr. 26,2008 as against 7.57% in the previous week.

Inflation surged to highest in 42 months led by increase in prices of tea,spices and fruits.

Finance Minister P Chidambaram, said, ``Steps are taken with the intentionthat they will bear fruits``

He further said that the current level indicates inflation is stable.

More items are likely to be banned from futures trading to contain inflation.

Rs v/s US $

On Monday, May 05, 2008, rupee ended at 40.61/62 per dollar, off an earlyhigh of 40.53. It had closed at 40.64/65 on Friday, after touching 40.78, it slowest since mid-March.

On Tuesday, May 06, 2008, the Rupee dropped to its lowest in more than 8 months to close at 40.95/96 per dollar, 0.8% lower from Monday`s close of 40.61/62.

On Wednesday, May 07, 2008, the Rupee fell to an 8 1/2 month, to close at 41.36/37 per dollar, off an intra day low of 41.41, the weakest since August 20.

Economy & its sectors

India-UK investment meet to take place on June 16

Britain will host a meeting of business leaders from the United Kingdom and India to help boost trade and investment between the countries.

The Business India Forum, to be held at the Institute of Directors in London on June 16, will bring together key players from both countries to discuss issues surrounding trade between the two nations.

Delegates from banks, investment houses and companies looking for opportunities in the UK will be presentat the event. In recent years, Indian firms have increased their investment in the UK, with companies such asTata, Jaivel and the India Infrastructure Finance Company choosing to operate in Britain.

A research revealed that 60% of Indian firms believe that London allows companies to grow on the globalstage and offers the best return on investment.

India, Canada to hold talks on FTA

Free Trade Agreement (FTA) discussions between India and Canada will be held by Commerce Minister Kamal Nath when he visits Ottawa in June.

The Indian High Commissioner to Canada R L Narayan said in Ottawa that this will be the first high level discussions on this subject. Both countries have already concluded an agreement on foreign investment protection and promotion.

An expert committee set up by the Canadian Council of Chief Executive Officers and the Confederation of Indian Industry last year, is trying to evolve strategies to strengthen bilateral relations including the free tradeagreement. The Committee will soon be submitting a report in this regard.

CII drafts agenda to sustain 25% growth

The Industry body CII has set a ten-point agenda for manufacturing sector to achieve and sustain 25% share of the GDP by 2020. The chamber said the agenda is aimed at increasing the contribution of the manufacturing sector to the GDP from current 15%-17% to 25% over the next 12 years.

CII said, as imports is becoming a large component in sectors such as capital goods, defining manufacturing, giving a roadmap to strengthen the sector is now imperative.

The chamber would be working towards opening up of strategic sectors such as coal to meet energy requirements. It also proposes that the steel and mining industry should work together to roll out guidelines thatwould lead to a win-win solution.

CII`s national committee on chemicals would focus on opening opportunities and encouraging Indian industries to evaluate the options of entering new areas such as water purification, nanotechnology and bio-fuels.

ADB should not ignore public sector: FM

Finance Minister P Chidambaram said that public sector would contribute to the development of core infrastructure in a major way by providing as much as USD 350 billion out of USD 500 billion needed in the next five years.

The Finance Minister, along with other senior Ministry officials, is in Madrid to attend the 41st annual meetingof the Asian Development Bank (ADB). Chidambaram said, the private sector is expected to provide only USD150 billion for development of core infrastructure sector, adding ADB should not ignore the public sector whileshifting focus to private sector.

He said that ADB must continue to engage effectively with the public sector to address the massive task of eradicating poverty in the region even while increasing its private sector operations. Chidambaram added that ADB should focus on clean energy projects by providing confessional finance.

Russia keen to invest in various sectors in Assam

Russia has expressed keen interest to invest in areas of oil and gas, tourism, power and infrastructure development in Assam.

In a meeting with Assam Chief Minister Tarun Gogoi, Russian Ambassador Vyacheslav Trubnikov said his country is keen to partner the state and invest in the overall development of the North Eastern region.

Terming the environment in the state as conducive for investment, Trubnikov said the threat perception in Assam and other parts of the region, as made out by some media reports, is incorrect.

Trubnikov said measures would be taken to promote Assam as an attractive tourist destination among the Russians.

ASEAN to set up Asia Fund to tackle financial crisis

Finance ministers from thirteen Asian nations meeting in Madrid have agreed to set up a foreign exchange pool of at least Euro 52 billion to be used in the event of another regional financial crisis like the one, ten years ago.

China, Japan and South Korea will contribute 80% of the funds. The rest would come from the ten members of the Association of Southeast Asian Nations, ASEAN.

The agreement came after talks on the sidelines of the Asian Development Bank`s annual meeting. The group says the region can be endangered by market turmoil, as well as rises in oil and commodity prices.

Govt. accords autonomy to Ratna PSCs for setting employee perks

The government is planning to give Navratna and mini-ratna public sector companies, which have long suffered attrition, complete autonomy in deciding the perks and bonuses of their employees.

The second pay revision committee for central public sector enterprises (CPSEs) is likely to ask the government to make necessary amendments to ensure this. Currently, they have the freedom to decide non monetary perks such as housing, health and education for employees and will now be authorized to decide the parameters of performance appraisal for employees in the executive cadre.

However, CPSEs would not have the authority of deciding neither the pay scales of their employees nor monetary perks such as timely bonuses, equity and cash incentives.

SBI hikes interest rates on FCNR, NRE deposits

State Bank of India (SBI) hiked interest rates on deposits of non resident Indians and foreign currency non resident (FCNR) deposits held in US Dollars, Pound Sterling, Euro, Australian Dollar, Canadian Dollar and Yen with effect from May 1.

The non resident external (NRE) rupee deposits of one year were raised to less than 2 years to 3.08% from 2.49%. It was further raised from two years to less than three years to 3.18% from 2.5% and from 3 to 5 years to 3.45% from 2.81%.

The US Dollar deposits of one to two years will earn interest of 2.33% as against 1.74%. At the same time, interest rate on deposits of two to three years has been raised to 2.43% from 1.75%, from three to four years to 2.7% from 2.08%, and from four to five years to 2.93% from 2.35%. For five years deposits, interest rates have been raised to 3.11% from 2.65%.

Shares of the bank declined Rs 42.95, or 2.36%, to settle at Rs 1,779.2. The total volume of shares traded was 528,183 at the BSE (Monday).

SEBI lowers margin requirement for futures contract

Market regulator Securities and Exchange Board of India (SEBI) has introduced cross margin facility for institutional traders, under which margin requirement for a futures contract will be reduced if the buyer holds stocks in the spot market. The move is aimed at reducing risks from defaults in the derivative segment.

Cross margin facility will be available initially for institutional trades. Cross margining refers to a position where the margin requirements in the derivatives market are set-off against the stocks held in the spot market. The cross margin facility will also be available to positions in cash market having corresponding off-setting positions in the stock futures market.

The initiative is aimed at improving the efficiency of the use of the margin capital by market participants. As an initial step towards cross margining across cash and derivatives markets, margins shall be levied on cash market positions which have off-setting stock futures positions in the derivatives market.

For positions in the cash market which have corresponding offsetting positions in the stock futures, VaR (Value added Risk) margin will not be levied on the cash market position to the extent of the off-setting stock futures market position. Extreme Loss Margin and Market to Market Margin will continue to be levied on the entire cash market position.

In addition, SEBI said that near month stock futures positions will not be considered for cross margin benefit three days prior to expiry of the contract. The regulator has also asked the stock exchanges to put in place the adequate systems and issue the necessary guidelines for implementing the cross margin facility by amending their bye-laws, rules and regulations.

While issuing the circular, the regulator has also clarified that there would be no change in the margins on the futures and options (F&O) positions. The guidelines, the regulator said, were being issued to protect the interest of investors and promote the development of the securities market.

Govt. to pump in Rs 1 bn in ECGC

The government has decided to pump in Rs 1 billion in the Export Credit Guarantee Corporation (ECGC) by way of increasing its equity in the firm. The move would result in providing additional insurance of Rs 50 billion for the crisis-ridden exporters.

The provision of Rs 1 billion has already been made in Union Budget for 2008-09. The additional funds would go into increasing the capital adequacy ratio of ECGC following which it would be able to expand its business.

ECGC offers credit risk insurance cover not only to exporters but also banks which have overseas dealings. The company did business of 9,201 policy covers up to December 2007 in the previous financial year.

Meanwhile, the government is also considering increasing the corpus of National Export Insurance Account (NEIA) by Rs 1.50 billion in the current fiscal to ensure availability of credit risk cover for projects and high-value exports.

This would provide additional credit insurance cover to protect long- and medium-term exports worth Rs 15 billion against political and commercial risk of the country. The Cabinet Committee on Economic Affairs has already approved the provision for increasing government`s contribution to Rs 20 billion in the NEIA.

Inflation controlling measures take time to give results: PM

Prime Minister Manmohan Singh said several steps have been taken to tame inflation but it would take some time before these bear fruit.

The government continued to face criticism over the soaring prices of essential commodities.

Inflation soared to a 42-month high of 7.57% for the week ended April 19 on account of higher prices of vegetables, food articles, steel and some fuel items. Exuding confidence that things will improve, he said the agriculture situation was excellent and there has been a record food production of 227 million tons.

CII calls for global measures to tackle inflation

Expressing its concern over rising food prices, the Confederation of Indian Industry (CII) has called for an immediate global response to tackle the crisis. It has stated that diversion of food to bio-fuels, changing weather conditions, and huge agricultural subsidies are some of the factors leading to rising food prices.

The CII said a global discussion on the crisis might help in building stronger information networks on consumption and production, so that corrective measures can be taken across the globe to avert a crisis.

CII Director General, Chandrajit Banerjee said that the industry body has been proactively campaigning for reforms in agriculture. The CII is also working on an agenda for developing second generation of bio-fuels which do not eat into the food stock, or impinge on agricultural land.

CII inks MoU with Chinese enterprises for IPR protection

A Memorandum of Understanding has been signed between the Confederation of Indian Industries (CII) and Quality Brand Protection Committee (QBPC) of Chinese Enterprises to enhance cooperation for the protection of Intellectual Property Rights (IPR).

Accordingly, a working group will be set up between CII and QBPC to organize an annual forum on IPR protection and exchange of database regarding service providers for IPRs. In addition, awareness campaigns and training programs for stake holders on both sides will be organized.

CII and QBPC have an annual exchange program which aims at forging closer partnership in the fields of IPR protection, patent registration mechanism and brand protection between Indian and Chinese industries.

Consul General Vishnu Prakash described the initiative as ``timely and important`` and called for regular exchanges and sharing of best practices between judicial, governmental and industrial bodies of India and China.

Polish Embassy eyes USD 3 bn trade with India

The secretary of Polish Embassy believes that there is potential to raise trade between Poland and India to USD 1 billion and gradually to USD 3 billion.

At present the trade between the two countries is reported to stand at USD 600 million, and export of products like rubber tea and coffee to the Polish market can be promoted by Kerala. Currently, Poland imports lot of rubber tea and coffee from Sri Lanka.

In addition, there is ample scope for mutual cooperation in specific areas like power generation, distribution and transmission, food processing and fishing.

Poland is a member of EU and its easy access to the EU as well eastern markets due to its location are favorable for investment.

Poland was reportedly strong in maritime and food processing industry and in the manufacture of sophisticated machinery and equipment for power plants, equipment for railway and road transport infrastructure development.

Onion exports likely to rise by 12% in April

Onion export is likely to increase by about 12% in first month of the current fiscal, paced by lower minimum export price (MEP) of the edible bulb.

India exported 80,120 tons in April 2007 and onion exports are soon expected to reach 88,000-90,000 tons. The estimate is based on no-objection certificate issued by National Agricultural Cooperative Marketing Federation (NAFED), who intends to keep the MEP of standard sized onions unchanged for this month, ahead of stable onion prices in the domestic market.

However, the MEP of onions grown in the southern states has been raised to USD 350 a ton for May, compared to USD 300 a ton in April. The average MEP of onion for May remains at USD 180 a ton, though it is in the range of USD 165-390 a ton for most of the destinations.

India had exported approx. 1 million tons of onions in 2007-08 fiscal, compared to 1.2 million tons in the previous year. In value terms, however, exports declined marginally to Rs 11.16 billion from Rs 11.35 billion in the year-on-year period.

Onions from southern states are exported mainly to Sri Lanka, Malaysia and Singapore, while the Nasik varieties are sent to all export destinations, particularly to the Gulf countries.

Govt. can take more measures to contain inflation: Ahluwalia

Planning Commission Deputy Chairman Montek Singh Ahluwalia said, the government can consider some more measures to contain inflation if prices do not soften going ahead.

Inflation touched a 42-month high of 7.57% for the week ended April 19 as compared to 7.33% in the previous week.

Bellying the expectation that steps taken to contain inflation would impact growth, Ahluwalia said the country is likely to record a growth of 8% during the current fiscal.

According to the RBI annual credit policy, Indian economy would grow between 8%-8.5% during the current year. During 2007-08, the economy expanded by 8.7%.

ADB to provide USD 500 million to tackle food crisis

The Asian Development Bank (ADB) will provide USD 500 million in immediate assistance to member nations hit hardest by soaring food prices, the head of the bank announced on Tuesday (May 6).

ADB President Haruhiko Kuroda said the bank would also double lending for agriculture in 2009 to USD 2 billion to combat the crisis, which he has warned puts more than a billion people in the region at risk of malnutrition. In 2008, the ADB plans to lend USD 1 billion to the sector.

Kuroda has warned that the food problem could cut into decades of economic gains in the Asia-Pacific region, home to two-thirds of the world`s poor and where spending on food accounts for 60% of total average expenditure.

SC yet to pass interim order on foreign stake in local banks

The Supreme Court has declined to pass any interim order on a petition challenging the constitutional validity of the Centre`s decision to permit shareholding of foreign investors up to 74% in banking companies.

The shareholder of private sector bank Development Credit Bank (DCB) had filed a petition challenging the decision of the Reserve Bank of India to grant ``approval letter`` to DCB, permitting the latter to allot preferential shares up to Rs 3.10 billion to corporate companies and foreign investors. The petitioner maintained that the RBI`s approval was pursuant to the order issued by the centre granting such benefits to the foreign investors.

The High Court rejected his plea for an interim stay on the allotment move, upon which a special leave petition (SLP) was filed in the apex court. The petitioner believes that the bank`s move approved will result in the shareholding of the foreign investors rising from 60% to 67%, and as a result, the shareholding of Indian retail investors and minority shareholders in the bank will reduce from 23% to 19%.

SEBI directs NSDL, CDSL to settle issues

A SEBI-appointed committee has called for an amicable settlement of issues between National Securities Depository (NSDL) and Central Depository Services (CDSL).

Several investors and brokers on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) had incurred losses in December on account of a technical glitch while transferring data between NSDL and CDSL. Though the issue was resolved soon, the inter-depository transactions delay had caused the stock exchanges to auction stocks in some cases, resulting in losses to broking houses.

The committee suggested that in future, NSDL and CDSL should work harmoniously to prevent such problems.

A process that usually takes seconds took much more time, leading to confusion. On day one there were technical hiccups at the NSDL end while day two saw certain parameters at CDSL`s transfer system being changed, leading to data transfer problems, the report clarifies.

Both the depositories intend to adopt advanced hardware solutions for digital signing and speeding up of the data transfer process.

Govt. to sell 5-10% stake in profitable PSUs

The government proposes to sell off about 5-10% of its stake in 24 central public sector companies and has initiated the diligence process for these companies.

The list includes majors like Nuclear Power Corporation (NPCIL), Cotton Corporation (CCI), ITPO, RINL , Pawan Hans Helicopters, Telecommunications Consultants (India) and Indian Railway Fund Corporation.

All CPSEs having net worth of Rs 2 billion and above and showing profitability continuously for the last three years are being considered for listing and possible divestment.

The government is likely to list these PSUs through an initial public offer (IPO) either in conjunction with fresh equity to be issued by the CPSE concerned or independently by an offer for sale by the government.

The government may also opt to sell 5-10% of its stake in such companies who choose to issue fresh equity through an IPO, especially in case of power major NTPC.

Apart from the net worth and profitability the government is also looking at other financial aspects of the companies before finally starting the process.

India to challenge WTO panel ruling on amended CBD

India has decided to challenge the rulings of the WTO panel stating that the amended customs bond directive (CBD) was not inconsistent with the WTO anti-dumping agreement.

The WTO panel had ruled that requirement by the US on India and Thailand to post bonds to cover full antidumping duties on imports of shrimp violated trade rules.

India believes that the panel also erred in concluding that every application of the extended bond requirement (EBR) under the amended CBD would not necessarily constitute an impermissible specific action against dumping or subsidisation, as the case may be.

Anti-dumping duties on shrimps to the extent of 10% of the exported value were imposed by the US on exports from India, Brazil, Ecuador, Thailand, China and Vietnam in February 2005. The amended CBD was introduced soon after on exports from India and Thailand.

Under the directive, shrimp exporters from the identified countries faced the liability of furnishing continuous bonds for an amount covering the total estimated anti-dumping duties or countervailing duties on the value of imports of shrimps for the previous 12 months. This resulted in a crippling financial burden for exporters as, earlier, they had to post a bond equal to 10% of the duties, taxes and fees paid in the previous year.

Following disputes filed by Thailand and India against the calculation of the duties and the CBD, the WTO panel had ruled in February 2008 that the application of the bond to cover the full duties was inconsistent with anti-dumping rules, as was the US use of zeroing to calculate anti-dumping margins. The US, after a review, also brought down anti-dumping duties on shrimps from India to 1.16%.

RBI to invest USD 5 bn forex reserves in infrastructure projects

The Reserve Bank of India (RBI) in consultation with the Government of India has decided to invest up to USD 5 billion in the wholly owned off-shore subsidiary of India Infrastructure Finance Company. The subsidiary will provide funding to Indian companies implementing infrastructure projects in India.

The aforesaid decision was made pursuant to the announcement made in the Budget 2007-08 to use a part of the foreign exchange reserves for infrastructure financing without the risk of monetary expansion.

The foreign exchange reserves of the country (including Gold, Special Drawing Rights and Reserve Tranche Position in the IMF) stood at USD 309.16 billion as on March 28, 2008.

Economy can grow up to 8.9% during 2008-09: NCAER

Projecting a much better forecast than those made by the government and RBI, economic think tank National Council of Applied Economic Research (NCAER) said the Indian economy could grow by up to 8.9% during 2008-09, despite a global slowdown.

Last week, RBI had projected a GDP growth of 8%-8.5% this fiscal. The short-term prospects are less attractive than a year earlier despite the fundamentals of growth remaining intact, NCAER said.

While the GDP growth in the base case is projected to be 8.5%, in the more comprehensive case, GDP growth is projected at 8.9%. Inflation, during the year, is likely to be in between 4.9%-5.2% against 4.4% last year. At the same time, fiscal deficit is projected to be close to 3% of GDP even under the higher growth scenario.

As per the advance estimates for 2007-08, the country`s economy expanded by 8.7%. The report said the sustainability of the growth momentum is clearly subject to overcoming the shocks and constraints along the way.

Pointing out the constraints, the report said the cyclical downturn in advanced economies and high commodity prices in international markets due to both short-term supply shortages as well as high growth in economic activity in the emerging economies could act as shocks.

MCD seals 1,496 New Delhi properties

MCD has sealed 162 properties in New Delhi, following the Supreme Court`s directive against illegal commercial units in the capital.

On May 06, 2008, a maximum number of 43 units were sealed in the south zone, 28 units were sealed in Lajpat Nagar, C R Park, G K Enclave and Amar Colony while action was also taken against properties in Keshav Puram, Ashok Vihar, Rohini, Trilok Puri, Anand Vihar and Darya Ganj among other areas.

The Supreme Court had on March 10 asked the civic body to seal within three months all shops not covered by the master plan for Delhi-2021 or the January 30 notification of the Central government.

A day after banning futures trade in four farm commodities and persuading steel producers to slash prices, the government said more measures were in the offing to curb inflation, which should ease in 8 weeks.

Minister of State for Industry Ashwani Kumar said, ``Government is not helpless and has means to ensure prices are brought down. More measures both administrative and fiscal are in the offing to control inflation.`` He said iron ore, steel and cement would continue to remain under the government scanner.

Kumar said a series of calibrated measures would ensure that inflation is brought down by at least one percentage point in the next two months. A favorable monsoon and harvest would further ease the pressure on prices of food grains, he added.

RBI to intensify banking services in North-East

Reserve Bank of India (RBI) has initiated a number of steps for expansion of financial and credit facilities in the north-east.

RBI Governor YV Reddy during his meeting with Meghalaya chief minister Donkupar Roy and state government officials advised commercial banks to reach the remote and rural areas through greater use of information technology.

An idea was mooted to have banking stalls in remote areas of the region to make available banking and credit facilities. It was also suggested to set up farmers training institutes for training farmers and rural poor on favourable credit culture and procedure for repayment etc.

Setting up of money exchange facilities and letter of credit centers along Bangladesh border to ease trade, financing of self-employment industries, strengthening of self-help groups and increasing manpower in bank branches were some of the other steps discussed in the meeting.

Checking inflation, controlling price rise is priority of the govt.: Ashwani Kumar

Checking the inflation and controlling price rise remain the foremost priority of the government, said Dr. Ashwani Kumar, minister of state for industry. In this connection, the government has announced a series of measures to ease the pressure on prices, which had escalated in the beginning of this year. While the full effect of these measures in checking price escalation is likely to be felt in the coming weeks, the positive effect thereof on the price of various items and commodities is already noticeable, he added.

The wholesale price index soared to 7.61% for the week ended Apr. 26, 2008 as against 7.57% in the previous week.

A comparative statement of prices is indicated in the annexure, which would show that timely, purposive and resolute action by the government has had the effect of checking prices, the minister said. He further added that inflation rates would be brought down further in view of the empirical evidence of lowering of prices.

During the interaction, Dr. Kumar explained that in an economy on a high growth trajectory, some pressure on prices spurred by heavy demand is inevitable. The government is, however, determined to control prices in a manner and at a level that will not cause hardship on the common man whose welfare is the first priority of the government. The Minister mentioned that despite a global food crisis, Government of India has been able to build up strategic food reserves through a calibrated policy of import and export controls. The record production and procurement of wheat and rice ensured by the government will ensure that prices of food items are maintained at acceptable levels, he added.

Responding to the queries from the media persons, Dr. Kumar stated that the recent World Bank report had confirmed that India has successfully managed to maintain food prices at below global levels. He further said that compared to other countries of the world including those in Europe, Latin America, South-East Asia, the government`s record of managing the food situation and prices of essential items through prudent economic management has been most satisfactory.

As regards cement prices, the minister said that representatives of the Cement Manufacturers Association have responded positively to suggestions of reducing cement prices, and added that the government has impressed upon industry that in the interest of all stakeholders, Indian Industry needs to hold prices so as to remain competitive, for which it is advisable to shun windfall profits. Dr. Kumar underlined that in the course of the coming few days, further reduction in prices of cement can be expected.

External sector

Forex reserves drop by USD 371 mn

Forex reserves dropped USD 371 million to touch USD 312, 500 million as on May 2, 2008, mainly due to the decline in foreign currency and assets collections, on a weekly basis.

As per the weekly statistical supplement of the Reserve Bank of India (RBI) released on May 02, 2008, foreign currency and appreciated USD 248 million to USD 302,576 million.

During the same period, the reserve position in the International Monetary Fund (IMF) dropped by USD 7 million to USD 479 million, while gold reserves declined USD 612 Million to USD 9427 million.

Foreign currency assets expressed in USD include the effect of appreciation or depreciation on non-US currencies (such as Euro, Sterling and Yen) held in reserves.

Money & Banking

Gilt yields end higher on supply concerns

On Monday, May 05, 2008, Indian federal gilt yields fell to their lowest in more than a month paced by comfortable cash conditions in the banking system which impelled demand from investors. The 10-year gilt yield ended at 7.79%, lower from Friday`s close of 7.84%. It hit 7.78% in intraday trade, which is its lowest since March 27.

Speculations regarding the central bank`s intervention to drain excess cash by tightening monetary conditions instead of increasing rates for curbing inflation bolstered bullish sentiment for gilts. Surplus cash in the banking system, as reflected by the daily reverse repo auction, was Rs 330.65 billion on Monday.

On Tuesday, May 06, 2008, gilt yields rose fuelled by expectations of tighter cash conditions following outflows for bond auctions and an increase in banks` reserve requirement. The 10-year gilt yields ended at 7.82%, above Monday`s close of 7.79%. Volume was heavy at Rs 98 billion on the central bank`s trading platform.

On Wednesday, May 07, 2008, the yields rose from one-month lows as high oil prices raised inflation concerns and investors trimmed positions ahead of bond auctions on Friday, May 02, 2008. The 10-year gilt yield ended at 7.87%, higher than Tuesday`s close of 7.82%. The yield fell to 7.78% on Monday, it`s lowest since March 27.

On Thursday, May 08, 2008, Gilt yields rose as investors feared that the central bank/RBI may announce more bond supplies to curb inflation-stoking surplus cash in the banking system. The 10-year bond yield ended at 7.88 %, one basis point above Wednesday`s close. The yield hit 7.78% on Monday, its lowest since March 27.

On Friday, May 09, 2008, Gilt yields inched up, as investors squared positions in anticipation of bond sales to drain inflation-stoking excess cash from the banking system. The 10-year federal bond yield ended at 7.89 %, a notch above the previous close of 7.88 %. The yield hit 7.78 % on Monday, its lowest since March 27. The yields held below Thursday`s close for most part of the day, driven by comfortable cash conditions, but investors grew wary towards the end as they expected the central bank to announce fresh supplies.

Call rates escalate to a higher range

The inter bank call rates declined sharply ranging between 5.00-6.30% on May 02, 2008, Friday, as against the previous working day, according to the data provided by the Reserve Bank of India (RBI) on May 05, 2007.

The total turnover of the call market stood at Rs 1.60 billion on May 02, lower than Rs 182.12 billion on April 30.

Call rates declined for the second consecutive day ranging between 3.50-6.25% on May 03, the Weighted average rate (WAR) being 6.11% on May 03 as compared to 5.90% on the previous working day. The total turnover of the call market stood at Rs 8.84 billion on May 03, considerably higher than Rs 1.60 billion on May 02.

On Monday, May 05, 2008, the overnight rates escalated, ranging between 4.50-6.10. Weighted average rate (WAR) stood at 6.01% on May 05 as compared to 6.11% on the previous working day. The total turnover of the call market stood at Rs 116.80 billion on May 03, considerably higher than Rs 8.84 billion on May 03.

On Tuesday, May 06, 2008, the overnight rates remained steady in the range of 4.00-6.10% Weighted average rate (WAR) stood at 5.96% on May 06 as compared to 6.01% on the previous working day. The total turnover of the call market stood at Rs 123.05 billion on May 06, considerably higher than Rs 116.80 billion on May 05.

On Wednesday, May 07, 2008, the call rates remained steady in the range of 4.25-6.05% Weighted average rate (WAR) stood at 5.94% on May 07 as compared to 5.96% on the previous working day. The total turnover of the call market stood at Rs 118.37 billion on May 07, as against Rs 123.05 billion on May 06.

Rupee closes at 41.60/61 per dollar after hitting one year low

On Monday, May 05, 2008, the Indian Rupee trimmed early gains, following oil price hikes that was likely to put pressure on the currency. Arbitrage by some banks, which sold rupees locally to buy the currency cheaper in the overseas non-deliverable forward (NDF) market, also weighed on the rupee. The partially convertible rupee ended at 40.61/62 per dollar, off an early high of 40.53. It had closed at 40.64/65 on Friday, after touching 40.78, its lowest since mid-March.

On Tuesday, May 06, 2008, the Rupee dropped to its lowest in more than 8 months, paced by surging crude oil prices and heavy dollar buying by oil refiners to cover their import payment needs.The heavy dollar buying triggered stop-loss orders of banks, and companies to unprofitable close positions thereby adding to the pressure on the currency.The partially convertible rupee ended at 40.95/96 per dollar, 0.8% lower from Monday`s close of 40.61/62.

On Wednesday, May 07, 2008, the Rupee fell to an 8 1/2 month, as oil prices surged higher, thereby prompting dollar demand from refiners, which raised concerns of a widening trade deficit. The partially convertible rupee closed at 41.36/37 per dollar, off an intraday low of 41.41, the weakest since August 20.

On Thursday, May 08, 2008, the Rupee dropped to a one-year, as record high oil prices pushed up dollar demand from refiners and weak stock markets diminished hopes for foreign inflows. The partially convertible rupee ended at 41.76/77 per dollar, off an intraday low of 41.80, the weakest since Apr. 20, 2007.

On Friday, May 09, 2008, The rupee finally recovered, as exporters cashed in their dollars after the unit hit one-year lows in the previous session, however, as per market grapevine record high oil prices and a wobbly stock market kept the gains limited. The partially convertible rupee ended at 41.60/61 per dollar, off an intraday peak of 41.32, but 0.4 % stronger than its previous close of 41.76/77. It lost 2.3 % on the week.

Stock Markets

Wrap up: Market ends the week on negative note

The 30-share index, Sensex, lost 862.42 points, or 5.15% to 16,737.70 in the week ended May 09; whereas the broad based NSE Nifty lost 245.60 points, or 4.92% to 4,982.60 in the same period.

On Monday, The 30-share benchmark index Sensex, opened on a positive note with a gap of 86.88 points following global cues. After few minutes of trade, it fell into the negative to bounce back into the positive terrain. The index in the noon trades gained strength to trade on a firm note.

However, the Sensex pared most of its gains to close on a negative note after witnessing a volatile day, touching an intraday high of 17,735.70 and low of 17, 457.27.

The 30-share BSE Sensex ended the day with a loss of 109.22 points, or 0.62% at 17,490.90; while the broadbased NSE Nifty settled at 5,192.25, down 35.95 points, or 0.69%.

India`s benchmark index Sensex fell on Tuesday. It opened on a negative note with a gap of 49.49 points on global cues. The index proceeded to trade in the negative terrain throughout the day as sustained selling activity was witnessed across board in heavyweights.

The Sensex ended the day with a loss of 117.89 points, or 0.67%, at 17,373.01; while the broad-based NSE Nifty settled at 5,144.65, down 47.6 points, or 0.92%.

India`s benchmark index Sensex fell on Wednesday led by BHEL, Bharti Airtel and DLF. It opened on a positive note with a gap of 31.14 points and after few minutes trading slipped nearly 100 points in the initial sessions of trade. The markets ended the day on a flat note after a volatile session, touching an intraday low of 17,229.98.

The Sensex ended the day with a loss of 33.70 points, or 0.19%, at 17,339.31; while the broad-based NSE Nifty settled at 5,135, down 9.15 points, or 0.18%.

The BSE Sensex fell for the fourth consecutive session of trading on Thursday led by ITC, Satyam and Infosys. It dropped by over 250 points on heavy selling by FIIs and weak global markets.

The Sensex ended the day with a loss of 258.66 points, or 1.49%, at 17,080.65; while the broad-based NSE Nifty settled at 5,081.70, down 53.8 points, or 1.05%.

On Friday, India`s benchmark index Sensex fell for the fifth consecutive session led by Jaiprakash Associates, RIL and REL. It plummeted over 340 points on heavy selling by FIIs, triggered by weak global cues.

The index opened at 17,020.79 and after few minutes of trading moved up in the positive to trade on a flat note. The market was volatile in the noon deals. Later it plunged below 17k touching an intraday low of 16,678.94, wrapping the day on a weak note.

The Sensex ended the day with a hefty loss of 343.58 points, or 2.01%, at 16737.07; while the broad-based NSE Nifty skidded 99 points, or 1.95% at 4,982.60.

Economy News

Inflation surged to highest in 42 months led by increase in prices of tea, spices and fruits. The wholesale pricebased index rose to 7.61% for the week ended April 26 from 7.57% for the week ended Apr. 19, 2008.