Exports post fastest growth since Mar '04

NEW DELHI: India's exports grew 56.9% during May 2011, the fastest pace of expansion since March 2004, to $25.9 billion. The provisional numbers released on Friday belie the government's own expectations of a moderation in growth rate, partly due to shipments rising at a fast clip during the last financial year.

While sectoral break-up for May was unavailable,commerce secretary Rahul Khullar told reporters on Friday that the engineering sector led the way in the first two months, clocking a growth of 115% to $14.7 billion.

Higher oil prices helped Indian refiners such asReliance Industries step up the value of consignments in their tankers. The sector grew 64% to $8.8 billion in April-May 2011. Similarly, electronics exports grew 80% to $1.83 billion while the other stars included gems & jewellery (23% to $ 5.7 billion), cotton yarn and made-ups (10.4% to $1.04 billion) and marine products (15.8% to $400 million).

Along with a rise in exports, trade deficit too widened in May on higher imports of crude mirroring rising global crude prices, prompting Khullar to warn that the gap between exports and imports could reach $150 billion. The other major contributor to the surge in imports were gold and silver, where prices have been on the rise for the last few months, resulting in imports rising 222% to $13.5 billion during April-May. Import of oil went up 12.9% to $20.3 billion during this period. The other sectors where imports went up significantly included major pearls and precious stones (24.6% to $5.2 billion) and machinery (46.7% to $5.9 billion).

"The big change between the last couple of months and now is that imports have suddenly surged," Khullar said. During the period April-May 2011, exports grew 45.3% to $49.8 billion, while imports were up 33% to $73.7 billion, resulting in a trade deficit of $23.9 billion..

Food Inflation in India May Climb as Government Raises Minimum Crop Prices

Food-price inflation in India, Asia’s third-largest economy, may accelerate after the government raised the prices it pays farmers for food grains and oilseeds, making crops more expensive, economists said.

The minimum prices for monsoon-sown crops including paddy, soybeans and corn were increased to help boost planting, the farm ministry said in New Delhi yesterday. The federal government sets the crop prices to assure farmers’ incomes, while selling subsidized grains and cooking oils to the poor.

An increase in food prices would add to inflationary pressures in India, where the central bank has boosted interest rates nine times since March 2010. Global food prices reached an all-time high in February driven by stronger demand and harvest disruptions, according to a United Nations gauge.

The higher crop prices in India will “raise the floor price of agricultural commodities,” Shubhada Rao, chief economist at Mumbai-based Yes Bank Ltd., said in an interview yesterday. “It will definitely add to food inflation.”

An index measuring wholesale prices of agricultural products advanced 9.01 percent in the week ended May 28 from a year earlier, the trade ministry said yesterday. Overall inflation in India has been above 8 percent for 16 months.

The jump in global food costs has pushed 44 million more people into poverty since June 2010, according to a World Bank estimate. Higher prices helped spark the riots across northern Africathis year, toppling Tunisian President Zine El Abidine.

Policy Concern

Food costs in India have been a concern for the last two years, Reserve Bank of India Deputy Governor Subir Gokarn said on June 2. Inflation needs to be curbed to boost economic growth, Reserve Bank Governor Duvvuri Subbarao said on May 18.

India, the world’s second-biggest rice producer, increased the minimum purchase price of the so-called common variety of raw rice to 1,080 rupees ($24) per 100 kilograms (220 pounds), from 1,000 rupees, the farm ministry said. The price of soybeans was raised 17.4 percent to 1,690 rupees per 100 kilograms and for peanuts by the same amount to 2,700 rupees.

India’s food inflation may accelerate from October when new crops, affected by higher farming costs and rising oil prices, arrive in the market, Ashok Gulati, chairman of the commission that recommends minimum prices to the government, said in May.

Monsoon-sown crops are planted from this month, with harvesting starting in October. The annual weather pattern, which accounts for more than 70 percent on India’s rainfall, may be 98 percent of the average, a level deemed normal, the Indian Meteorological Department said in April.

“Although the hike in minimum support price is valid for rice and wheat for procurement purposes, it serves as a benchmark for other crops, feeding inflation,” said Madan Sabnavis, chief economist at Mumbai-based CARE Ratings. “This year, the rains are expected to be good and the crop is likely to be better. But there will be no relief for inflation as on one hand the government tries to protect the consumers and on the other hand, the farmers.”....

BSE allows trading in 135 more stocks in F&O

MUMBAI: The Bombay Stock Exchange (BSE) will add 135 stocks to its futures and options segment from August 2011, following a recent regulatory move to allow bourses to offer incentives to brokers for generating volumes in illiquid derivatives contracts. The step has raised hopes of reviving the BSE's near-dormant F&O segment. 

"With recent positive developments designed to augment trading in F&O, we are working towards making the BSE market-ready for increased participation in our equity derivatives business," said the exchange's CEO, Madhu Kannan, in a release. 

The BSE has 84 stocks in addition to a few indices in its F&O segment, which clocked an average daily turnover of Rs 18 crore in the past one month. In comparison, the NSE's average daily turnover was Rs 1 lakh crore in the period. 

Brokers said the so-called liquidity enhancement scheme presents an opportunity for the BSE to capture a portion of its rival's dominant market share. 

"The chance of a revival of the BSE's equity derivatives segment has been enchanced 100-fold after the introduction of the liquidity enhancement scheme," said Rajesh Baheti, MD, Crosseas Capital. "Though the scheme may not be a success immediately, it is certainly promising as liquidity begets liquidity," he said. Brokers said even the NSE may benefit from the liquidity enhancement schemes....

IRDA notifies M&A guidelines for general insurers

Insurance regulator IRDA has notified the merger and acquisition guidelines for general insurance companies thereby paving way for consolidation in the sector.

The Regulation -- Insurance Regulatory and Development Authority (Scheme of Amalgamation and Transfer of General Insurance Business) Regulations, 2011 -- would apply to all private general insurance companies with immediate effect.

With more than 10 years after opening up of the insurance sector, the regulations would pave way for M&As between 20 private sector players, most of who have foreign investment that is capped at 26%.

Following this, the general insurers would now have to file the draft agreement of the proposed merger with the Irda and also the respective balance sheet while seeking approval from the regulator.

The regulator has retained with itself the power to vet the valuations arrived at by the companies involved in M&As, saying that the Authority would carry out an independent valuation of the insurance business of the transacting parties
to arrive at the valuation.

In order to safeguard the policyholders' interest, the Irda has mandated the insurers to inform their respective customers about the deal, it said.

Besides Irda, an acquirer would need to have approvals from the Reserve Bank and the finance ministry, in case it has foreign direct investment. It also needs to have clearance of the Sebi and the Competition Commission of India (CCI).

According to industry players, most of the private sector general insurance companies require fresh infusion of capital which may come from foreign partners, who have been constrained by the FDI cap. The Bill to raise the FDI ceiling is pending in Parliament.

The general insurance business has remained loss making for want of capital, which is constrained due cap on foreign capital infusion.

Till now, the Insurance Act provided for the M&As only for life insurance companies........