General Awareness Updates – March 2010

Economy / Business:

India’s GDP to grow at 7.2 per cent in FY’10

The Union government estimated the economy to grow by 7.2 per cent in financial year 2009-10, against 6.7 per cent a year ago, despite contraction in farm production. According to advance estimates released by the Central Statistical Organisation, farm output is estimated to contract by 0.2 per cent and services to record moderate growth. Manufacturing, however, is estimated to grow by a robust 8.9 per cent this fiscal, which may prompt the government to withdraw stimulus in a phased manner.

Bolstered by a stunning 7.9 per cent growth in the second quarter of this fiscal, the Finance Ministry in its mid-term review had projected the economy to grow by 7.75 per cent this fiscal and the Reserve Bank had pegged it at 7.5 per cent. According to the CSO, farm and allied activities are pegged to shrink by 0.2 per cent this fiscal against 1.6 per cent growth a year ago. The output is likely to decline due to fall in Kharif production on account of drought and floods that hit several parts of the country.

The estimated growth this fiscal will be driven by robust manufacturing sector expansion against 3.2 per cent in FY’09. The sector had got various stimulus doses from the government in the wake of global financial crisis. According to the advance estimates, mining and quarrying is likely to grow by 8.7 per cent compared with 1.6 per cent a year ago, while electricity, gas and water supply by 8.2 per cent against 3.9 per cent.

Trade, hotel, transport and communication are also estimated to rise by 8.3 per cent against 7.6 per cent last year and construction by 6.5 per cent in FY’10 from 5.9 per cent in FY’09. However, other services like financing, insurance, real estate and business services are likely to witness fall in expansion and grow by 9.9 per cent this fiscal against 10.1 per cent last fiscal and community social and personal services by 8.2 per cent compared with 13.9 per cent.

Advanced estimates are released before the end of a fiscal year to enable the government calculate various figures like fiscal deficit in the Budget. These advance estimates are calculated on the new base year of 2004-05, than 1999-2000 as was the practice earlier. As such, the government will get statistical advantage of revising down fiscal deficit at 6.5 per cent of GDP than budget estimates of 6.8 per cent as the size of the economy is pegged higher at Rs.61,64,178 crore this fiscal.

The CSO has full actual data for the first half, partial data for the third quarter, and no actual data for the Q4, while putting out advance estimates. That is why, the final numbers undergo some revision from the advance estimates. Even as estimated 7.2 per cent growth rate for this fiscal is lower than RBI’s and Finance Ministry’s projections, the second half is estimated to grow at the higher rate than seven per cent recorded in the first half. This is despite the fact that RBI and other economists project economy to register lower growth in the Q3 than the stunning 7.9 per cent in the second quarter. As per advance estimates, per capita income is estimated at Rs.43,749 during 2009-10 compared to Rs.40,141 crore during 2008-09, showing a rise of 9 per cent.

Rs.1 lakh crore budget funds go unspent each year

While the government is grappling with a huge fiscal deficit and hence large borrowings to fund key social sector schemes, staggering sums of up to Rs.1 lakh crore in a year out of the money allocated to various ministries remained unspent between 2005-06 and 2007-08. Unspent provisions of Rs.100 crore each or more alone totalled Rs.59,000 crore in these years, according to the Comptroller and Auditor General (CAG). The CAG has so far reviewed accounts till 2007-08. The Union account for 2008-09 is still being readied.

What’s worse, the CAG has pointed out that there is uncertainty even about whether all the amounts shown as spent in government accounts have actually been spent. In 2007-08, for instance, more than Rs.51,000 crore was allocated under various flagship schemes in which the money is directly transferred to the bank accounts of NGOs, autonomous bodies and district authorities. Whether these amounts have actually been spent by the organisations or are lying idle in their accounts is a moot point, the CAG has noted, observing that since these fall outside the purview of government accounts and hence the Centre’s checks, this is an alarming situation.

The unspent grants are a shocking indicator of the government’s poor budgeting mechanism and the failure of its monitoring tools put in place ostensibly to keep a tab on the progress of some of the key flagship schemes. Even the Union government’s monthly accounts for the current fiscal, maintained by the Controller General of Accounts (CGA), the official account keeper, reveal that some of the ministries have failed to learn lessons from the past. Their expenditure till December 2009 was not more than 50 per cent of the annual budget though just three months remained for the end of the fiscal year. Unspent provisions of Rs.100 crore and above have been in key departments implementing many of the government’s social sector schemes in health, education, rural development and food and public distribution, besides capital acquisition for the defence services.

“A budgetary grant or appropriation not utilised indicates either poor budgeting or shortfall in performance or both,” the CAG said. In 2007-08, the latest finalised Union account available, unspent provisions of more than Rs.100 crore, which need a detailed explanatory note to the Public Accounts Committee, occurred in 60 cases. In 2007-08, under 97 grants of civil ministries, there was an unspent provision of Rs.1,08,000 crore. These unspent grants are supposed to be surrendered to the government as soon as these are foreseen without waiting for the last day of the year.

ONGC wins U.S.$20 bn contract in Venezuela

A group of firms led by flagship explorer Oil and Natural Gas Corporation (ONGC) has won the bid for a 40per cent stake in Carabobo-1 acreage in the Orinoco heavy crude belt of Venezuela, the first major oil auction during 11 years of Hugo Chavez’s presidency and three years after acreages were nationalised in the region. This is the first big-ticket success for ONGC Videsh, ONGC’s overseas arm that will represent the parent in the grouping, since its acquisition of then London-listed Imperial Energy for over U.S.$2 billion in 2008. Carabobo-1 will also be ONGC Videsh’s second project in Venezuela after San Cristobal.

The Carabobo-1 acreage is estimated to have 31 billion barrels of recoverable reserves and will take U.S.$19 billion to develop, starting with a U.S.$9 billion initial investment. The grouping will pay a little over U.S.$1 billion as signing amount and also extend a loan of similar amount to Venezuela’s state oil firm PdVSA. The group also has Spain’s Repsol and Malaysia’s Petronas as ONGC’s equal partners with 11 per cent each, while northeast explorer Oil India Ltd and refiner-marketer Indian Oil Corporation are minority partners and have 3.5 per cent each. Together as a bloc, the Indian holding will, thus, be 18 per cent.

As investors, the Indian companies together will get some 5-6 million tonnes of crude as equity oil and will have the first right to buy up to 9 million tonnes of the output. The consortium is expected to bring the project into production by 2012-13. The acreage can produce 400,000 barrels of oil per day, or 20 million tonnes in a year. The grouping will form a separate ‘mixed company’ in which PdVSA will hold 60 per cent through its arm, Corporacion Venezulana del Petroleo. The companies will jointly operate the project, a deviation from other acreages where usually the most experienced company is in charge of operations.

Since Carabobo crude is thick and cannot be processed in all refineries, PdVSA will supply dilutants till such time ‘upgraders’ are constructed by 2016-17 at a cost of some U.S.$6 billion. By the time production starts, ONGC’s refining arm, MRPL, too will be able to process such crude. At present, heavy oils are processed mostly by private refiners such as Reliance Industries and Essar and some quantities in state-run units.

Carabobo-1 is among the two projects that Caracas put under the hammer. The other project, Carabobo-3, has been won by Chevron along with Japan’s Mitsubishi, Inpex and Venezuela’s Suelopetrol after paying a signing amount of U.S.$500 million. Carabobo-3 will be assigned at a later date.

Iconic British confectionery company, Cadbury has accepted the offer of U.S. giant Kraft by accepting an offer worth U.S.$19 billion, which will create a world leader in food and confectionery. Cadbury Kraft will provide large costs savings and create a global market leader.

Cadbury began as a small grocer’s shop in Birmingham Central, England, in 1824, and now has a 45,000 work-force. Cadbury is the world’s second biggest confectionery company after Mars. Kraft is the second largest snacks group in the world after Cadbury. The combination of Cadbury and Kraft would have more than 40 confectionery brands across many countries.

The U.S. economy grew by an annualised rate of 5.7 per cent between October and December 2009. The number, which is a first estimate, is a big rise from the previous quarter’s growth rate of 2.2 per cent. It suggests the country’s economy is growing at its fastest pace for six years and confirms the U.S. economy has left its year-long recession behind. But even with the rebound, gross domestic product (GDP) shrank by 2.4 per cent across 2009 as a whole. That was the worst annual performance since 1946.

Industry body Nasscom, estimates that the country’s IT-BPO sector, will reach close to a historic U.S.$50 billion in export revenues for the financial year ending March 2010, a growth of 5.5 per cent. For financial year 2010-2011, it expects an even stronger growth in software and services exports of 13-15 per cent, and domestic revenue expansion of 15-17 per cent. A strong domestic market and more spending on IT by the government have helped the industry.

The Central government has doubled the limit of foreign direct investment (FDI) proposals from Rs.600 crore to Rs.1200 crore. This means proposals with total foreign equity inflow of Rs.1200 crore and below will be considered by the finance minister for approval. Earlier, foreign investment of up to Rs.600 crore was approved by the finance minister and anything more than that was sent to the Cabinet Committee of Economic Affairs.

A rise in consumer durables and capital goods combined with the year-ago low base catapulted India’s industrial output to the highest growth rate in 16 years in December, making it easier for the Central government to justify rollback of some of the fiscal stimulus measures provided to the industry during the economic downturn. The Index of Industrial Production (IIP) rose 16.8 per cent in the last month of 2009 compared with a 0.2 per cent contraction a year earlier, rising on the back of a series of three stimulus measures between December 2008 and February 2009.

The Central government reduced Cenvat (Central value-added tax) by 6 per cent points to 8 per cent and service tax rate to 10 per cent, from 12 per cent. However, the additional outgo in expenditure together with a revenue shortfall had led to a sharp spurt in the fiscal deficit to a record 6.8 per cent of gross domestic product (GDP). Data released by the government showed the country’s GDP may grow at 7.2 per cent in the current fiscal.

The number of telephone subscribers in India rose 3.5 per cent to 562.21 million in December 2009 from 543.20 million in the previous month, according to data released by Telecom Regulatory Authority of India (TRAI). With this, the overall tele-density in the country reached 47.89 per cent.

Wireless subscriber base increased 3.78 per cent from 506.04 million in November 2009 to 525.15 million in December 2009. Wireless tele-density stands at 44.73. However, fixed-line subscriber base declined marginally by 0.26 per cent from 37.16 million in November 2009 to 37.06 million in December 2009.

State-run telecom operators BSNL and MTNL, holding 85.22 per cent of the fixed-line (wired-line) market share, lost 0.12 million subscribers in December. Overall wire-line tele-density is 3.16 percent. Total broadband subscriber base grew 3.56 per cent to 7.83 million in December over the previous month’s figures of 7.57 million.