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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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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