NATIONAL ELECTRICITY POLICY APPROVED
The central government on Feb Wednesday approved the national electricity policy that stresses on electrification of rural areas and development of the power sector.

The draft policy contains proposals to make power available to all households in the next five years and raise the per capita consumption to over 100 units by 2012.

A cabinet meeting chaired by Prime Minister Manmohan Singh here approved the policy.

"Power supply at reasonable rates to rural India is essential for the overall development of the sector. Equally important is the need for reliable power supply at competitive rates to the industry," Finance Minister P. Chidambaram said.

The policy plans power supply to 10 million households and 100,000 villages in the next five years.

It also lays down guidelines for competitive bidding and norms for captive power plants to promote competition and attract investment.

WEEKLY INFLATION RATE FALLS TO 5.37%
The average inflation rate for the year may fall below the 6.5% rate, as per the latest trends in the weekly Wholesale Price Index (WPI), which slipped to 5.37% for the week ended January 22.

This will be good news for the government in the weeks leading up to the budget. However, officials said they expect the inflation to stay moderate because prices of food-grains fall after the harvest season.

International crude prices are also hovering at about $49 a barrel. With the ebbing of winter trends, the demand for a build-up of oil inventories will also ease.

The only blip is the continuing turmoil in Iraq, which has affected a major chunk of supply from Opec nations. The weekly inflation rate dropped by 0.05% to 5.37% from 5.42% in the previous week, which is a 34-week low. There was an all-round dip in wholesale prices, including that of manufactured products, vegetables, fruits, edible oils, minerals and even some fuel categories. It was 6.24% a year-ago. The index fell by 0.1% to 188.4 points. It stood at 178.8 points in the corresponding period a year ago.

The index for primary articles was down by 0.4% to 184.7 points due to a sharp fall in the prices of food and non-food articles.

Within the fuel, power, light and lubricants group, the index was down marginally to 287.9 points due to the 1% decline in the prices of naphtha and furnace oil. The index was 261.5 points during the same period in '03-04.

The minerals group index plummeted by over 2% to 274.8 points due to lower all-round prices for fire clay, iron ore and fluorite.

INDIA TO DOUBLE ITS FOREIGN TRADE SHARE
India's share of world trade is expected to double by the year 2009, Commerce & Industry Minister Kamal Nath said on Friday. "India is poised to double its share of foreign trade to reach 1.5 per cent of world trade by 2009," he said in a meeting with visiting Norwegian Minister of Trade and Industry Borge Brende.

The commerce minister said the National Trade Policy of 2004-09 has taken an integrated approach to serve as a generator of economic growth and employment to help achieve the country's development objectives. He added that India was committed to pursuing economic reforms in an inclusive manner so that the benefits percolated down to all sections of the society.

Nath told the visiting Norwegian Minister that in respect of non-agricultural market access India advocates a formula that focusses on addressing the issue of tariff peaks, high tariffs and tariff escalation of products of export interest to developing countries.

"This is the only way to get equitable interest in the multilateral trade negotiations," Nath said. Norway has been a major investor in India and trade between the two countries has egistered a growth of over 100 per cent last year to touch $340 million.

CHINA NO THREAT TO INDIAN IT INDUSTRY
China may be way ahead from India in manufacturing but it will take years before it can catch up with its neighbour in information technology, says a study conducted by consultancy firm Mckinsey.

"It will be many years before China poses a threat to India in IT. For starters, the Chinese must consolidate their highly fragmented industry to gain the size and expertise needed to capture large international projects. Currently, there is little movement in this direction," the study said.

Shortcomings in the structure of China's IT industry prevent it from taking full advantage of fast increasing number of engineering graduates, software-applications professionals and English-speaking graduates, the study said.

China's annual revenues in software and IT services were $6.8 billion in 2003, which was barely half of India' $12.7 billion a year. China's nascent foreign software-outsourcing business accounts for just 10 per cent of the industry's total revenue, compared with around 70 per cent for India.

GOVERNMENT HIKES FDI IN TELECOM TO 74%
The government on Feb 2, 2005, cleared the long-discussed proposal to hike foreign direct investment limit in the telecom sector to 74 per cent from the current 49 per cent.

As per the proposal, FDI would include FIIs, NRIs, Overseas Commercial Borrowings, FCCBs, ADRs, GDRs, convertible preferential shares, proportionate foreign investments in Indian promoters, and investment companies, including their holding companies.

Thus, 74% foreign investment can be made directly or indirectly in the operating company or through a holding company.

Hutchison, Idea, and Bharti, would be the major beneficiaries if the FDI limit is raised to 74% from 49%. The bigger players would be able to raise funds in the international markets through the equity route, while the smaller operators would be able to exit easily.

It could also lead to more consolidation, more competition and result in increased choice for consumers.

S & P RAISES INDIA'S RATING
International rating agency Standard & Poor's (S&P) raised India's long-term foreign currency rating by a mark to just a step below investment grade, based on the country's improved external position and growth prospects.

The rating upgrade to BB+ with a stable outlook, will boost the overseas debt-raising plans of Indian corporates. It will help Indian issuers of debt abroad to borrow there at slightly cheaper rates, especially for short and medium term maturities. S&P also raised the long-term foreign currency ratings of six top Indian corporates on Wednesday.

Bankers and analysts feel that a host of Indian corporates who are looking at raising debt funds abroad aggregating $700m, could benefit in terms of a finer spread of around 5-7 basis points (one basis point is one hundredth of a per cent).

S&P also affirmed India's 'BB+' long-term local currency and short-term ratings. The S&P move is regarded as a belated step, as other international rating agencies like Moodys and Fitch had already raised the ratings earlier.

According to S&P, the upgrade on foreign currency reflects India's improved external position and growth prospects. "India's external balance sheet has strengthened markedly, due to reserves accumulation and prudent debt management, which should lower the external liquidity risk from its fiscal vulnerability," said Ping Chew, credit analyst, director, sovereign and International Public Finance Group, S&P.

According to the agency, India's external position - stronger than all other sovereigns in the 'BB' rating category - is resilient and likely to be maintained in coming years. The strong growth in export earnings from the service and manufacturing sectors, as well as non-debt foreign capital inflows should alleviate the impact of rising imports, it reckons.

The agency added that India's external debt and debt service burden is expected to fall in the years ahead. India's economic prospects are stable, with GDP growth likely to hover at 6.5%-7.0% in the medium term.

However, the combined deficit of the Centre and the states stands at 10% of the GDP and this has been a cause of worry for rating agencies and fiscal experts. This has deterred agencies from upgrading the sovereign rating.

STATES TO GET REVENUE REIUMBERSMENT FOR CHANGING TO VAT
States will get their revenue compensation for switching over to value added tax in the form of monthly grants, but the finance ministry has told the Union cabinet that it is unable to assess the "precise financial implication" of this pack The ministry has said it will make the payment to states monthly, instead of annual lump sum payments. This will be done by calculating the projected net revenue of each state on the basis of actual tax collections made by it in 2004-05, and applying the average annual growth rate of taxes. The growth rate will assume that the states have not introduced VAT.

EMPLOYEE PROVIDENT FUND LIMIT RISES TO 9.4%
The Government had on Wednesday night announced a hike of one per cent in EPF interest rate to 9.5 per cent for 2004-05, benefiting four crore subscriberse. The hike in EPF rate will mean a shortfall of Rs 269 crore to the EPFO. The finance ministry's contention has been that the EPFO would just about manage to break even if it were to declare an interest rate of 8.25%, considering that there has been a fall in the yields on its investments.

Labour ministry sources, however, maintained that the Rs 269 crore loss would be made good through a Rs 300 crore arrears recovery by the EPFO from several establishments.

A treasury manager of a leading public sector bank said the EPF rate rise would adversely affect the bond market tomorrow, though markets did have some apprehensions about a possible hike. "It is a clear signal that interest rates must realign upwards", he said.

However, UPA government's decision to raise the Employees' Provident Fund interest rate from 8.5 per cent to 9.5 per cent on February 3, 2005, 24 hours before polls in three states, has come under the Election Commission scanner. The EC is learnt to have written to the Cabinet Secretary today, seeking details on what forced the government to make the announcement ahead of Assembly elections.