REFORMS WILL BOOST FURTHER FII
Now when FII in India has surpassed FII inflows of Korea and Taiwan since January '05, these investors' eyes are now on the Budget on February 28.

There are several reforms which the FIIs expect from the government in the forthcoming budget; the major being rationalization of revenue collection, cut in customs duties and expenditure on infrastructure. Many believe that the government needs to do more in the Budget to ensure that taxpayers' money is used for asset creation and not merely expenditure.

Further, it is believed that the government must bring some improvements in the capital expenditure. "Capital expenditure constitutes a very small fraction of revenue expenditure and for the past three years, hovered around 25%," the brokerage said in a pre-budget note.

According to the head of equities at a foreign brokerage, international investors should not have qualms over India's fiscal deficit as India is showing a strong growth rate and the government is putting stress on improving tax-GDP ratio.

CHINA'S NEW FARM POLICY MAY HELP INDIAN AGRICULTURE
Agriculture growth is imperative for attaining a higher GDP growth. India can benefit by adopting some of the measures which china has introduced in its new farm policy, to give its agriculture sector a boost and a helping hand. China has now introduced direct subsidies to farmers, begun to phase out its centuries old agricultural tax, subsidise seed and machinery purchases, and increase spending on rural infrastructure.

Beijing has announced grain subsidies worth $1.4 billion in the form of direct payments of around $7/acre to every acre planted with grain.

Agricultural taxes will be eliminated over the next five years, which would mean a saving of $5-7 billion for farmers. It will also end tax on all speciality crops like fruits, vegetables and cotton, except tobacco.

Beijing will give $193 million as subsidy on high-quality grain and Soya seeds at the rate of $7-10/acre planted. A $5 million subsidy will be given to buy machinery. The bumper boost is expected to come from a $18 billion spending on rural infrastructure such as irrigation, rural roads, power, and labs.

The new policies come not a moment too soon because Beijing's policy makers face tough choices. Though agriculture accounts for just 15% of China's GDP, and less than 5% of tax revenue, it still employs roughly half of the labour force and rural incomes are just 30% of the urban average.

This widening gap between rural and urban living standards is thus a powder keg of political instability waiting to explode in the countryside.

More importantly, China is realising the futility of MSP. Over the past several years, it has been abolishing procurement of grain at "protection prices" (support prices at which government-sponsored marketing bureaus procure a set quota of grain from farmers), a policy introduced during the late 1990s when market prices for grain were falling from historical highs reached in 1996.

Now the government has minimum "protection prices" for only rice and corn. Grain prices are now mostly set in open markets, and government procurement prices appear to be following market prices. In addition to agricultural subsidies and tax reduction, China is privatising the domestic grain marketing system, making large public in-vestments in agricultural infrastructure, stepping up efforts to prevent loss of agricultural land to urban uses, and encouraging rural financial institutions to loan more money to farmers.

China last year resumed futures trading of corn (suspended in the late 1990s), introduced a new futures contract also for imported soybeans and began cotton futures.

For China-watchers, the moot point is will these measures deliver results. Analysts believe they have symbolic value but only marginal effects on rural incomes or grain production.

The subsidies and tax reductions provide 2-4% of the value of agricultural production as benefit. Instead, the increase in grain production during 2004 was due to a 30% increase in grain prices. In addition, given fiscal constraints and reliance of local governments on agricultural tax revenue, the fiscal sustainability of these policies is unclear.

Rural per capita income rose 6.8% during 2004, the fastest increase since 1997, but subsidies and tax reduction accounted for only a small portion of the growth in income. "About half of the increase in income was due to increased sales of agricultural commodities, 29% to in-creased non-farm wage and salaries, and 14% to non-farm business in-come The subsidies are not large enough to make planting grain as profitable as planting alternative crops, such as cotton, vegetables, or fruit," say analysts.

The subsidies also do not provide strong incentive to increase yields because they are based on the area planted in grain. Seed subsidies are focused on "high-quality" seeds, which are not necessarily high yielding. The reduced agricultural tax lowers production costs slightly, put-ting more cash in the farmer's pocket. But it does not appear, however, to provide an incentive to plant more grain since farmers pay less agricultural tax whether they produce grain or not.

FOREX SPV TO BE USED IN INFRASTRUCUTRE PROJECTS
A Formal announcement regarding setting up Special Purpose Vehicle SPV for making forex reserves available for infrastructure projects is expected before this years's budget. The investment will be made only in 'financially viable projects'.

Following a long argument session, Ministry of finance ministry and the RBI seem to have accepted Plan panel deputy chairman Montek Singh Ahluwalia's proposal to use part of India's forex reserve for public sector projects.

The proposal is an altered version of Ahluwalia's first suggestion where he proposed to use $5 billion a year from forex reserves. Ahluwalia had proposed that as money is short, a certain portion of forex reserves held by the RBI, that stand at $130 billion as of now, could be used for infrastructure projects. Currently, forex reserves are mainly invested in low yielding US treasury bills. Government leadership held the view investment in core areas where the returns are less and take a long gestation period to be completed, would still bear better returns than US treasury bills' returns.

Sources said this proposal has been accepted in principle and may be factored in the gross budgetary support for next year's annual Plan. Also, the responsibility of identifying the projects may rest with Planning Commission.

The RBI had cautioned that any possible direct or indirect impact on the fiscal and monetary side, including financial stability, has to be taken into mind before opening forex reserves, and that this move should not have an adverse impact on its books.

Also, there were apprehensions that opening forex reserves could stoke inflation and also increase fiscal deficit. This could have a negative impact on Centre's ability to adhere to fiscal deficit target set by Fiscal Responsibility and Budget Management (FRBM) Act.

GDP GROWTH AT 6.9%; AGRICULTURE SLOWED DOWN DURING 2004-05
According to the advanced estimates of the Central Statistical Organisation (CSO), Ministry of Statistics and Programme Implementation, Gross Domestic Product (GDP) at factor cost at constant (1993-94) prices in the year 2004-05 is likely to attain a level of Rs. 15,29,366 crore, as against the Quick Estimates of GDP for the year 2003-04 of Rs. 14,30,548 crore. The growth in GDP during 2004-05 is estimated at 6.9 per cent as compared to the growth rate of 8.5 per cent during 2003-04.

The 'agriculture, forestry and fishing' sector is likely to show a low growth rate of 1.1 per cent in it GDP during 2004-05, as against the previous year's growth rate of 9.6 per cent. In fact, the growth rate of 6.9 per cent in GDP during 2004-05 has mainly been due to the growth rates of over 5 per cent in the sectors of 'mining' 'manufacturing', 'electricity, gas and water supply', 'construction', 'trade', hotels, transport and communication', 'financing, insurance, real estate and business services', and 'community, social and personal services'.

The net national product (NNP) at factor cost, also known as national income, at 1993-94 prices is likely to be Rs. 13,54,385 crore during 2004-05. In terms of growth rates, the national income is expected to rise by 7.0 per cent during 2004-05 in comparison to the growth rate of 9.0 per cent in 2003-04.

The per capita income in real terms (at 1993-94 prices) during 2004-05 is likely to attain a level of Rs. 12,414 as compared to the Quick Estimate for the year 2003-04 of Rs. 11,799. The growth rare in per capita income is estimated at 5.2 per cent during 2004-05, as against the previous year's estimate of 7.1 per cent.

PRIVATE FINAL CONSUMPTION EXPENDITURE LEVEL HIGHEST IN 23 YEARS
The Ministry of Statistics has revealed that the Private final consumption expenditure (PFCE) has risen by 8.3% during '03-04 in comparison with the previous year, which is seen to be the highest growth rate in 23 years. There have only been two other years since 1950-51 - during 1980-81 and 1958-59 - when growth in PFCE has been higher than this.

PFCE reflects the spending power of the retail consumer. The main segments of consumption expenditure are expenditure on food, clothing, rent, transport and communications, consumer goods, education and medical costs. The 'food, tobacco and beverages' segment is the largest expenditure head at 45% of total expenditure.

Transport and communications and rent, fuel and power come next at 16% and 10%, respectively. Typically, rising incomes are associated with a shift in expenditure patterns to comforts or luxuries rather than necessities. Thus, the present rise could result in a move away from food to other segments.

PFCE constitutes a large part of the GDP measured by the expenditure or demand method (as compared with GDP by economic activity, which divides GDP into agriculture, industry and services). Thus, an increase in household and corporate consumption expenditure suggests that most of the rise in GDP is coming from PFCE growth.

RESERVES CROSS $ 129 BILLION
India's foreign exchange reserves reached a level of $129.72 billion in the week ended Jan 28 mainly on account of large-scale overseas fund inflows into the domestic market, according to the Reserve Bank of India (RBI) Statement made on Feb 5th 2005.

This represents an increase of $291 million in the country's foreign exchange pile over the previous week, according to the weekly figures issued by the RBI.

During the week ended Jan 28, the country's foreign currency assets registered an increase of $286 million over the previous week to touch $123.72 billion.

HIGH-CLASS CONSUMER GOODS ON A ROLL
According to reports by manufactures of quality consumer goods sales of LCDs, plasma televisions, 550-litre plus frost-free refrigerators, split air-conditioners as well as cars like the Porsche, Audi, BMW and Mercedes, have increased surprisingly in the past two years.

In general, most of these purchases happen by way of upgrades or through the replacement route. Manufacturers say these inspirational purchases are by the 'upwardly mobile' dual-income families and self-employed consumers.

Much of this phenomenon has been made possible because of the financing options, which have triggered growth of premium products across categories. Surprisingly, the urban market is not the only contributor to premium purchases; manufacturers say the semi-urban and rural markets have also accounted for a good percentage of the purchases.

Industry watchers say bigger acquisitions are the result of both availability and affordability. Non-metros like Chandigarh, Shimla, Ludhiana, Jalandhar, Pune and Amritsar are increasingly more receptive to premium cars, home theatres and other high-value consumables. It is seen that now a days even an upwardly mobile consumer is buying Rs 73.5 lakh S-class Merc, which, is used to be the ultimate status symbol only for the super rich in the country.

The luxury car market is currently 5,000 units strong a year, with local assembler Daimler Chrysler topping sales. Global carmakers, however, expect the number to touch 15,000 in five years. Market watchers say the growing interest shown by luxury carmakers in entering India reflects the increasing purchasing power of the Indian customer.

The Indian consumer no more settles for anything lower than the best because of the growing disposable incomes.

A COMPREHENSIVE POLICY AGENDA FOR ALL THE CENTRAL MINISTRIES
Prime Minister Manmohan Singh has decided to keep the disinvestments agenda alive by asking the finance ministry to prepare a white paper on the subject.

The white paper is part of the comprehensive policy agenda for all the Central ministries, issued by Mr Singh on Wednesday. This included a review of the FDI policies in various sectors and the implementation of the action plan for the financial sector within the next six months.

In the run-up to the Budget, he has asked the finance ministry to develop a service tax structure that is acceptable to both the Centre and states and improves tax administration. Labour laws also have to be reformed in a time-bound manner, according to the PM's wish list.

He has asked the finance ministry to formulate a national policy on subsidies with an exit option for goods, which are inconsistent with it. This will include a rationalisation of fertiliser subsidies. The ministry has also been asked to put in place an effective regulatory arrangement that can be applied to the different sectors of the economy.

The PMO statement says every ministry has been asked to prepare a time schedule of the progress report on their listed action areas. "Their progress will be benchmarked against the schedule laid out," it says.

The agenda says the government will push for a strategic oil reserve, create a competitive petroleum and natural gas sector and establish a transparent regulatory mechanism. Rules under the Electricity Policy will be completed in a time-bound manner and a policy on rural electrification will get the Cabinet's nod within six months, it adds.

NEW CIVIL AVIATION POLICY BY MARCH END
A comprehensive aviation policy would be ready by March 31 and government proposed to introduce in the Budget session of parliament a Bill providing for an independent regulator for the aviation sector, Minister of State for Civil Aviation Praful Patel said on Thursday.

Patil told a national conference on Indian aviation that though the policy would be ready by March 31, government had been implementing simultaneously those recommendations of the Naresh Chandra committee which required 'urgent attention'.

Allowing private airlines to fly abroad, unbundling of the monopoly of oil public sector undertakings and addressing the issue of a regulatory framework were part of the recommendations which needed "urgent attention and have already been taken into account", he said.

Emphasising that an independent regulator on the lines of ones in the telecom and insurance businesses was required in the aviation sector too, Patel said, "a Bill will be introduced in the Budget session of Parliament itself".

"The DGCA is a regulator. We are going to come out on how to strengthen the DGCA", he said. The regulatory framework of DGCA needs to be strengthened and given more teeth, he said.

Noting that the central and state levies on aviation turbine fuel was high, he said it was 30 per cent in India as against 12 to 13 per cent internationally. "We are therefore in the process of unbundling the monopoly of oil PSUs", he said. The conference was organised by the Confederation of Indian Industry.

INDIA MARCHING AHEAD IN TOURISM SECTOR
The World Travel and Tourism Council (WTTC) has identified India as one of the fastest growing countries in terms of tourism demand over the next 10 years. India has been placed at number second position with a growth rate of 8.8% in the tourism sector. The only country to be placed higher than India in this growth list is a European destination Monte-Negro, which is growing at 10.3%. While developed world has more number of tourist arrivals their growth rate was lesser than Asian economies. In fact, the list of top 10 fastest growing tourist nations is dominated by Asian economies. China - which, incidentally, attracts more international tourists than India - was close behind with a growth rate of 8.7%.

According to WTTC President Jean-Claude Baumgaten, "India is a new and virgin market and the world is just discovering it. Development and investment is bound to take place if everything is on track as India is on the radar of every international chain." He added, "While India may still be far behind several developed nations in terms of the number of tourist arrivals every year, the rate of growth in tourism demand is very high for India,"The growth prospects for India, he said, are higher because of the rapid pace of tourism-enhancing developments in the country.

"The government's 'Incredible India' campaign has already made tourists across the globe stand up and take notice. With India opening up its skies to global carriers and also allowing domestic airlines freer access to international routes, the demand is projected to grow faster in years to come," he added.

However, he also pointed out that the tourism infrastructure in India needs to be improved given there are 173 countries competing against each other. He said that "the two main gateways of the country- Delhi and Mumbai airports-should be upgraded to international standards. He added, "The other issue is connectivity -not only should international airlines be allowed to increase but domestic airlines should also be encouraged to fly on international routes."