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FEB 12, 2006
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Oil On Boil
A surge in oil prices to almost $70 a barrel on concerns about the restart of Iran's nuclear programme only hints at what may lie ahead? Experts believe prices could soar past $100 a barrel if the UN Security Council authorises trade sanctions against the Middle Eastern nation and Iran curbs oil exports in retaliation. A look at the unfolding energy scenario.


Scrolling E-Tourism
As consumers increasingly look for tailor-made vacations, e-tourism is taking a new shape. Now, search engines are allowing customers to find the best value or lowest price for air tickets and hotels. Here is a look at global trends.
More Net Specials
Business Today,  January 29, 2006
 
 
The Current Account Story
NRI remittances and invisibles are keeping the current account deficit in check. Why is there such a huge, and rising, gap between exports and imports?

All of India's economic indices and indicators are climbing north, accompanied by raucous cries of approval from legions of cheerleaders who want more of the same, year after year after year. The only flies in the ointment are two small items which are not supposed to be there on the list, or, at least, will be better off not being there. India's trade deficit jumped 113.51 per cent to $31.6 billion (Rs 1,42,200 crore) and current account deficit (the excess of goods and services imports plus invisible outflows over corresponding exports and inflows) zoomed a whopping 2,571.34 per cent to $6.5 billion (Rs 29,250 crore) in the first half of 2005-06. The more perspicacious analysts are already tut-tutting about these, though even they accept the argument that the $140-billion (Rs 6,30,000 crore) foreign exchange kitty provides enough cushion to tide over any unforeseen emergencies or imbalances.

Put simply, it means our imports (not counting defence items) are growing at a much faster rate than our exports. According to the Reserve Bank of India (RBI), payments for oil imports soared 43.7 per cent and those for non-oil imports jumped 50.3 per cent during April-September 2005, compared to the previous corresponding period. And had inflows from non-resident Indians and invisibles not bailed the economy out, the situation could have become critical (See Report Card).

THE REPORT CARD
TRADE DEFICIT: $31.6 billion; 113.51%
CURRENT ACCOUNT DEFICIT: $6.5 billion; 2,571.34%
FOREIGN EXCHANGE RESERVES: $140 billion; 18.64%
IMPORTS: $76.39 billion; 48.39%
NRI REMITTANCES: $174 million; -$1.33 billion*
NET INVISIBLE RECEIPTS: $47.83 billion; 52.60%
NET INVISIBLE PAYMENTS: $29.15 billion; 70.86%
$ figures for the first half of 2005-06; percentage figures denote change over H1, 2004-05; *actual figure for H1, 2004-05

So, is there a systemic problem with the Indian economy? Apparently not! Economists say such export-import mismatches cannot be avoided in a growing economy like India. RBI sources point out that these deficits will grow further if the economy manages to gallop along at 7-8 per cent per annum as is being projected. In the longer run, though, experts point out that a worsening deficit could lead to a depreciation of the rupee, a la the US dollar.

"There is need to improve the quality of inflows. Our reserves come from short-term inflows and not longer term investments," says J. Moses Harding, Executive Vice President, IndusInd Bank. Even if that doesn't happen immediately, higher inflows from foreign institutional investors can well turn the deficit into a surplus. The current account volatility, thus, signals nothing more serious than an adolescent economy coming of age.


For A Little More Competition
The Manufacturing Competitiveness Mission announced by the Prime Minister makes eminent sense but the real question is whether it can deliver.

Manmohan Singh: Optimistic

Prime minister Manmohan Singh recently announced the launch of a Manufacturing Competitiveness Mission to take the growth rate of the country's manufacturing sector up from about 7 per cent at present to 12 per cent over the next few yeares. This, says the National Manufacturing Competitive Council (NMCC), which is spearheading the mission, will generate 2.5 million jobs over the next 10 years compared to one million jobs over the last decade and raise the manufacturing sector's contribution to gross domestic product from 17 per cent in 2003-04 to 23 per cent over the next couple of years.

An NMCC report on "National Strategy for Manufacturing in India" says issues like tariffs and indirect taxes, cost of capital, innovation and technology, infrastructure and regulatory environment are holding back the sector. For starters, the NMCC has identified 12 industries which have massive potential for rapid growth and employment generation. These include textiles and garments, leather and leather goods, food processing, gems and jewellery, handlooms and handicrafts, chemicals, pharmaceuticals, information technology hardware, electronics, auto components and the capital goods industry.

However, as Nagesh Kumar, Director General, Research & Information System for Non-Aligned and Other Developing Countries, points out, most firms in any industry broadly face a similar macro-economic environment; yet, their performances vary widely. "Obviously, enterprise dynamism has a role to play in producing success stories," he says, adding that this hasn't been addressed by the report.

But that's a minor glitch in an otherwise long-overdue exercise. The point is: will the government walk the talk and iron out the policy and regulatory bottlenecks that is holding back Indian industry, or will it simply carry on mouthing platitudes. The jury is out on that one.


Growing With The Times
The government is hiking the SSI investment limit to Rs 5 crore for 69 more items

A more-than-two-year-old proposal by the ministry of small Scale, Agro and Rural Industries will finally become official policy. Its long-pending note on raising the investment limit in small-scale industries from Rs 1 crore to Rs 5 crore in 69 more products-including all pharmaceutical products falling under the small and medium enterprise (SME) category-has been accepted by the Union Cabinet. "A notification to that effect will be issued soon," says a senior official in the ministry.

The increased investment limit will help many industries such as auto components, glassware and food processing, but it will really bring a sea change in functioning of the pharmaceutical sector. The reason: for the past two years, the government has been pressurising small and medium pharmaceutical companies to adopt "good manufacturing practices (GMP)" under Schedule M-which deals with issues of good manufacturing practices-of the Drugs and Cosmetics Act, 1940, without much success.

LONG OVERDUE STEP
Raising the SSI investment limit from Rs 1 crore to Rs 5 crore will:
» Help smaller pharma companies implement Good Management Practices
» Allow small firms to upgrade technology
» Provide a level playing field for small companies
» Increase competitiveness of SSIs
» Improve the sector's export potential

SME pharma companies argued that by implementing GMP, which would require investments of more than Rs 1 crore, they would lose their small scale industries (SSI) status. "They can now modernise and upgrade themselves without fear now that the limit is being raised," says D.G. Shah, Secretary General, Indian Pharmaceutical Alliance, a union of 11 domestic pharma companies.

Incidentally, the smaller pharmaceutical companies have been having rough ride over the last couple of years. The government's decision to levy excise duty on the maximum retail price (MRP) of medicines rather than on their factory-gate price-the price that wholesalers, hospitals and pharmacies pay for the drug-has meant that it no longer makes business sense for the bigger pharmaceutical companies to source their products from smaller manufacturers.

Pharma apart, the 69 new items include pickles and chutneys, bread, dyestuff, glass and ceramics and automotive parts such as horn buttons, radiator grills, seat cushion and sun shades. Once the notification is issued, the SME sector will have 140 items with an investment limit of Rs 5 crore.

 

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