India's trade deficit widened in August as companies stepped up imports of oil and machinery to meet demand in the world's second-fastest growing major economy.
The trade deficit jumped to $6.8 billion from $5 billion in July, the Ministry of Commerce and Industry said in a statement in New Delhi today. Imports rose 32.6 percent to $19.5 billion. Exports in August grew 18.9 percent to $12.6 billion.
Imports are climbing as General Motors Corp., Honda Motor Co. and other automakers build new factories in India to cash in on the nation's auto demand, while refiners are buying more crude oil to fuel power generation. Exports have been hurt by the fastest gain in the nation's currency in at least 33 years.
`India's trade deficit is a result of its unprecedented economic growth,'' said D.H. Pai Panandiker, president at RPG Foundation, an economic policy group in New Delhi. ``The deficit is also under pressure because exports turned weak after the strong gain in the currency.''
India's rupee, Asia's best performer, has climbed 11.4 percent this year as international capital flows to the world's second-fastest growing major economy after China. India's economy grew 9.3 percent in the three months to June 30.
Non-oil imports in the April-August period rose 42.9 percent to $66 billion and oil imports gained 8.3 percent to $25.9 billion, today's report said. The trade deficit between April and August widened to $32.5 billion from $19.9 billion in the same period last year.
Rising salaries and borrowing from commercial banks have fueled spending by consumers in the world's second-most populous nation. Hewitt Associates Inc. forecasts salaries in India will climb an average 14.5 percent in 2007, the steepest gain in Asia for the second straight year.
General Motors, Honda, Volkswagen AG and half a dozen other companies plan to spend at least $6.6 billion on new factories. All are betting on a country where 7 people in 1,000 own a car, compared with 450 per 1,000 in the U.S. and 500 per 1,000 in Western Europe.
India's manufacturing growth accelerated in September as rising incomes spurred consumer spending, ABN Amro Bank NV said today. Manufacturing makes up a fifth of India's $854 billion economy.
The bank said its purchasing managers' index rose to 59.1 last month, the highest level since October 2006, from 57.9 in August. A reading above 50 indicates factory output gained.
Source - Bloomberg
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Wednesday, October 3, 2007
India Trade Deficit Widened to $6.8 Billion in August
Monday, October 1, 2007
Indian crude oil basket hits $78.46 a barrel
The basket of crude oil that Indian refiners buy hit another all-time high of $78.46 a barrel on Friday, the latest day for which data is available.
The high prices have pushed up revenue losses of the country’s three oil marketing companies to Rs 210 crore per day from Rs 190 crore a day in the first 15 days of September.
The government is, however, still sticking to its guns by not increasing retail selling prices of petrol and diesel. There is very less chance of a hike in prices of petrol and diesel. The government is under huge political pressure, and could face mid-term elections, said a senior official of the petroleum ministry. Fuel prices are more about politics than economics, the official added.
The official, however, said the Cabinet was closely observing the movement of the price of the Indian crude oil basket. We are keeping the Cabinet updated all the time, the official said.
The Indian basket, which comprises Oman-Dubai sour (high sulphur) grade crude oil and Brent dated sweet (low sulphur) crude oil in a 59.8:40.2 ratio, averaged $74.83 a barrel in September. In August the average price of the basket was $69.03 a barrel.
The prices of petrol and diesel were last increased in June 2006 when the average price of the crude oil basket was at $67 a barrel. The rupee was then valued at around 45 per dollar.
Since then, the value of rupee has risen to below 40 per dollar. This effectively makes the value of the crude oil basket around $72 a barrel, as the oil marketing companies are now paying lesser in terms of rupee for the crude oil they buy.
Friday, September 28, 2007
Ethanol - India Story
WHAT IS FUEL ETHANOL
Ethanol (ethyl alcohol, grain alcohol, ETOH) is a clear, colorless liquid with a characteristic, agreeable odor. In dilute aqueous solution, it has a somewhat sweet flavor, but in more concentrated solutions it has a burning taste. Ethanol, CH3CH2OH, is an alcohol, a group of chemical compounds whose molecules contain a hydroxyl group, -OH, bonded to a carbon atom. The word alcohol derives from Arabic al-kuhul, which denotes a fine powder of antimony produced by distilling antimony and used as an eye makeup. Alcohol originally referred to any fine powder, but medieval alchemists later applied the term to the refined products of distillation, and this led to the current usage.
ETHANOL AS A FUEL
Ethanol is used as an automotive fuel by itself and can be mixed with gasoline to form what has been called "gasohol" FUEL ETHANOL- the most common blends contain 10% ethanol and 85% ethanol mixed with gasoline. Over 1 billion gallons of ethanol are blended with gasoline every year in the United States. Because the ethanol molecule contains oxygen, it allows the engine to more completely combust the fuel, resulting in fewer emissions. Since ethanol is produced from plants that harness the power of the sun, ethanol is also considered a renewable fuel. Therefore, ethanol has many advantages as an automotive fuel.
Most industrial ethanol is denatured to prevent its use as a beverage. Denatured ethanol contains small amounts, 1 or 2 percent each, of several different unpleasant or poisonous substances. The removal of all these substances would involve a series of treatments more expensive than the federal excise tax on alcoholic beverages (currently about $20 per gallon). These denaturants render ethanol unfit for some industrial uses. In such industries undenatured ethanol is used under close federal supervision.
Ethanol has been made since ancient times by the fermentation of sugars. All beverage ethanol and more than half of industrial ethanol is still made by this process. Simple sugars are the raw material. Zymase, an enzyme from yeast, changes the simple sugars into ethanol and carbon dioxide. The fermentation reaction, represented by the simple equation C6H12O6 2 CH3CH2OH + 2 CO2 is actually very complex, and impure cultures of yeast produce varying amounts of other substances, including glycerine and various organic acids. In the production of beverages, such as whiskey and brandy, the impurities supply the flavor. Starches from potatoes, corn, wheat, and other plants can also be used in the production of ethanol by fermentation. However, the starches must first be broken down into simple sugars. An enzyme released by germinating barley, diastase, converts starches into sugars. Thus, the germination of barley, called malting, is the first step in brewing beer from starchy plants, such as corn and wheat.
ETHANOL IN INDIA
India imports nearly 70% of its annual crude petroleum requirement, which is appox. 110 million tons. The prices are in the range of US$ 50-70 per barrel, and the expenditure on crude purchase is in the range of Rs.1600 billion per year, impacting in a big way, the country's foreign exchange reserves.( Oil Prices touched a record high of $76 per barrel )
The petroleum industry now looks very committed to the use of ethanol as fuel, as it is expected to benefit sugarcane farmers as well as the oil industry in the long run. Ethanol (FUEL ETHANOL) can also be produced from wheat, corn, beet, sweet sorghum etc. Ethanol is one of the best tools to fight vehicular pollution, contains 35% oxygen that helps complete combustion of fuel and thus reduces harmful tailpipe emissions. It also reduces particulate emissions that pose a health hazard.
10% blending from October 2008: The Government is serious of considering 5% doping mandatory with immediate effect & are willing to increase it to 10% from October 2008. This decision will be directly benefiting the sugar cane producing states like Uttar Pradesh, Maharashtra, Karnataka, Tamil Nadu, Andhra Pradesh, Gujrat & Bihar. As all these states are facing a serious problem of excess sugarcane cultivation for the current year and also could face the same in future too.
Hard Road Ahead: The policy is now clear but still the question of comfort zone of Oil Marketing Company is important. The ethanol producers should concentrate on the technologies by bringing the cost of production at lower end & here Brazil’s input is important.
The Indian Sugar Mills and the private stand-alone ethanol manufacturers should cut the cost of production by using good technologies requiring less utilities like steam, water and electricity and they should also concentrate on co-generation through effluent generated by Sugarcane Juice & Molasses Route. The lower cost of production can still bring the ethanol prices down from the current Rs. 21.50 per liter. Suppliers from Maharashtra are supplying at Rs. 19.50 per liter. The ethanol suppliers should now focus on producing large quantum as this could drop the production cost creating a Win-Win Situation.
ETHANOL WORLDWIDE
Other countries are either producing and using ethanol in large quantities or are providing incentives to expand ethanol production and use. Brazil and Sweden are using large quantities of ethanol as a fuel. Some Canadian provinces promote ethanol use as a fuel by offering subsidies of up to 45 cents per gallon of ethanol.
India is initiating the use of ethanol as an automotive fuel. A move has been made by distilleries in India to use surplus alcohol as a blending agent or an oxygenate in gasoline. Based on experiments by the Indian Institute of Petroleum, a 10 percent ethanol blend with gasoline and a 15 percent ethanol blend with diesel are being considered for use in vehicles in at least one state.
In France, ethanol is produced from grapes that are of insufficient quality for wine production. Prompted by the increase in oil prices in the 1970s, Brazil introduced a program to produce ethanol for use in automobiles in order to reduce oil imports. Brazilian ethanol is made mainly from sugar cane. Pure ethanol (100% ethanol) is used in approximately 40 percent of the cars in Brazil. The remaining vehicles use blends of 24 percent ethanol with 76 percent gasoline. Brazil consumes nearly 4 billion gallons of ethanol annually. In addition to consumption, Brazil also exports ethanol to other countries.
Sweden has used ethanol in chemical production for many years. As a result, Sweden’s crude oil consumption has been cut in half since 1980. During the same time period, the use of gasoline and diesel for transportation has also increased. Emissions have been reduced by placing catalytic converters in vehicle exhaust systems which decrease carbon monoxide, hydrocarbon, and nitrogen oxide emissions. To address global warming concerns, the amount of carbon dioxide produced while burning fossil fuels must be reduced. Ethanol-blended gasoline and ethanol-blended diesel are being considered as viable alternatives to further lower emission levels.
Benefit to Common People
Comparative Current prices as in Brazil (per gallon) -
1. Pure alcohol (95% purity) ethanol = 1.35 R$ = 29.70 RS.
2. Gasoline with 25% ethanol mandatory by law = 2.46 R$ = 54.12 RS.
3. Gasoline with 25% of ethanol + additives (octane boosters)= 2.56 R$ = 56.32 RS.
Thursday, September 27, 2007
The rising rupee, foreign trade & inflation
As the popular saying goes, the difference between a pessimist and an optimist is that whereas the former sees the glass as half-empty, the latter perceives it as half-full. The reality is the same; it is the inference that matters.
Take the figures for the first quarter of 2007-08 in regard to foreign trade. Exporters rightly crib about the lower realisations consequent to the appreciation of the rupee against the dollar - by more than 10% over the same quarter of last year. Imports have accelerated, and may be attributed to the cumulative impact of an economy growing at a robust rate and possibly the lower price tag for overseas goods in rupee terms, which has also fuelled demand.
To those who see these issues in perspective, what is a cause for concern is the sharp drop in the import purchasing power of exports - from 71% to 61% - during the latest three-monthly period over that of the previous fiscal. In another era, the burgeoning trade deficit that has nearly doubled to $21 billion may be viewed as very troubling; now the context is different; with forex assets at more than $200 billion and swelling weekly, we are in a position to make light of it.
However, there is another angle to the steady climb of the Indian currency against the greenback, namely the possibility that its impact on inflation may be benign. In its latest monetary policy review, the Reserve Bank of India drew comfort from the fact that the pass-through effect of monetary, fiscal and supply-side measures, in conjunction with seasonal factors has brought the inflation rate to below the stipulated threshold limit - 4.4% from 5.9% as of end-March 2007. Perhaps this assessment was too laconic to permit an elaboration of the role of strengthening rupee vis-à-vis the dollar in influencing the inflation rate on a downward course. We shall revert to this topic later.
Let us dwell upon the several strands of the issue one by one. Exports have fared badly during the April-June 2007 period, rising by a meagre 7% in rupee terms, though in dollar terms, the growth rate is definitely better at 18%. The setback in terms of rupees is easily explained; the foreign buyer, finding that he has to fork out more dollars to buy Indian rupee-dominated goods, has tuned to other markets seeking price advantage. This has adversely impacted on the export performance. The exporters too are despondent that the declining fortunes of the dollar have meant diminished earnings in terms of rupees. This trend is a distinctive to our export effort and to the realisation of the target of $125 billion set for 2007-08. But gyrations in the forex market must be taken in stride and overcome through conscious drive for quality and cost-cutting to retain and expand overseas markets.
The second point to note is that our imports have maintained a high order of increase during the first quarter of the current fiscal - 34% in dollar terms and 22% in rupee terms. Despite a negligible rise of 4% in oil imports when denominated in dollars -in our currency, oil imports have recorded a negative growth rate -it is the non-oil imports that have really soared - by 50% in rupee terms and much more in terms of dollars. This is possibly a sequel to the high rate of economic growth that has led to a keen demand for capital goods, non-ferrous metals and export-related imports such as pearls and precious stones, chemicals and cashew. With the dollar weakening against the rupee, imports also became cheaper and hence the boom in overseas purchases. Seen in this context, this development is not a cause for worry.
The third fall-out of the firming up of our currency against the dollar may well be the easing of inflationary pressures of late. Unfortunately, the nexus between the two has not been highlighted in the RBI policy statement. In reality, this is quite simple. When the rupee strengthens in the forex market, it means lower prices of imported goods in terms of our currency. In turn, the cost of imported items tends to fall in the home market. They figure as intermediaries, raw materials and capital goods for which, in rupee terms, we pay less now than, say a year ago. Of course, bulk consumption goods like pulses and edible oils too which figure in our imports, for which we pay less rupees per dollar. The cumulative impact of all these factors is the moderation in the inflation rate.
In sum, the strong showing of the rupee in relation to the dollar is not an unmitigated evil as it is made out to be. It is not and the taming of the beast of inflation may be a direct sequel to this trend.
Thursday, September 20, 2007
Indian rupee breaks through 40 per dollar level for 1st time since 1998
The Indian rupee rose to a nine-year high against the U.S. dollar Thursday amid strong demand from foreign funds investing in one of the world's fastest growing economies.
The rupee rose 0.7 percent to 39.88 per dollar, breaching the psychologically crucial 40-per-dollar mark for the first time since May 1998.
The rupee has appreciated more than 10 percent against the dollar so far this year as global investors have flocked to India, where the economy is growing about 9 percent annually and the stock market has been climbing to record highs.
Analysts expect the rupee to remain strong through this quarter, although that could hurt exporters, especially the country's hugely profitable outsourcing industry.
"It will stay around 40 for some time," said Agam Gupta, head of foreign exchange trading at Standard Chartered Bank in India.
The rupee's strength has come despite measures by the Reserve Bank of India to counter a surge in foreign money into the country that also has fueled inflation. Last month, the central bank installed several curbs on overseas borrowing by Indian companies and ordered banks to hold more cash in reserves.
But Gupta said the central bank can do little to stem the flow of money from other sources.
"A lot of inflows have been in the form of foreign direct investment and investments in stocks and bonds," he said. "Those inflows will continue."
Foreign institutional investors have bought US$10.1 billion in Indian stocks and bonds so far this year, according to the Securities and Exchange Board of India. That money is on top of a record US$16 billion India received as foreign direct investment in the last fiscal year that ended March 2007.
The rupee got a boost after the U.S. Federal Reserve made a bigger-than-expected cut its key interest rate Tuesday, stoking expectations that investors will bring in more dollars to take advantage of higher interest rates here and a bull run in the stock market. The rupee gained about 1 percent against the U.S. dollar in Wednesday's trading.
India's benchmark interest rate is now 7.75 percent, 3 percentage points higher that the Fed's key rate, and it's unlikely that the Indian central bank will cut rate soon.
Market players will likely revise their projections for the rupee-dollar rate following the Fed move, Gupta said. Most foreign exchange traders earlier expected the rupee-dollar rate to average around 41 during the October-December quarter.
That is bad news for exporters, whose overseas earnings are eroded by the strong rupee.
Indian Commerce and Industry Minister Kamal Nath said the rupee's strength was "a cause for concern" and the government may have to revise the export target of US$160 billion set for the current fiscal year.
Trade data released earlier this month showed exports growth have already begun to decelerate.
"It is a new situation and requires a new response," Nath said, adding the government would explore measures to help exporters tide over the impact of a stronger rupee.
