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In continuing euphoria, the Indian
economy was fourth largest contributor
to incremental global GDP growth at
3.2% after the US, China, and Japan;
it raced past Germany, France, and the
UK in this key indicator. This was
backed by a strong bull rush in the
stock market taking the absolute
number of the SENSEX above the Dow
Jones Industrial Average (DJIA); the
market cap of SENSEX is nowhere near
the market-cap of DJIA.
For the first time in 2 years, there were
actual market fundamentals to back
this rise. Infrastructure grew by 5.6%
compared to a paltry .8% in February
last year and could have been higher
but for dropping steel and crude oil
production levels. This growth was
reflected in allied segments where
cement product grew 16.3% (1.3%),
electricity generation 9% (-.8%), coal
9.3% (2.2%), and refinery output 6.2%
(-3.5%). On the downside, crude oil
production fell by 2% (-4%) and
finished steel production dropped 1.1%
(6%). Crude oil production dropped
primarily due to the destruction of a
major platform in Bombay High by a
fire in July 2005. In a sign of
production level catching up to the
previous year, crude oil produced was
2.545 million tons (mt) compared to
2.596 mt. Actual coal production was
37.8mt (34.5mt), steel 3,280mt
(3,179mt), cement 12,757mt (10,971mt).
Total electricity generation last year
was 50,137 billion units.
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In a continuation of good financial management by Finance
Minister P. Chidambaram, infrastructure sector budget
has gone up by USD 23.2 billion or 106% to USD 97.90
billion. Almost all segments within this sector such
roads; irrigation projects, airport infrastructure,
port construction, power generation projects,
railways, telecom, and urban infrastructure get large
increases in their respective budgets. It is now up to
individual Ministries to use the money judiciously and
implement the programs as per the plan.
Extending good financial governance to the Public Sector Units,
Prime Minister Manmohan Singh wanted to unshackle the
profit-making PSUs so they do not have to seek the
political Public Investment Board (PIB) approval to
make investment decisions. The principal beneficiaries
of this move will companies like ONGC, IOC, and GAIL
who need to make quick moves to bid for oil and gas
blocks worldwide to secure the flow of fuel to sustain
the economic growth. Other large profit-making PSUs
will also benefit, as they do not have to seek PIB
clearance on expansion plans that cost for that USD
2.2 billion. If Singh manages to pull this off, he
would have fulfilled a key promise in the Common
Minimum Program (CMP) to grant fiscal autonomy to
successful PSUs. However, he still needs to work on
management autonomy as his Ministers use positions on
the Boards of these companies as political-advancement
tools by granting out positions to key patrons and
supporters. Last year, former Oil & Petroleum
Minister Mani Shankar Aiyar appointed many political
sidekicks to positions on the ONGC Board that invited
widespread condemnation and ultimate firing of Aiyar
from that post.
In another key area to boost business and investment, the
Government is trying to address the drug-patenting and
generic drug issue. The Government had previously
required all patented drugs negotiate a price when
they applied for rights to market in India. Patent
holders have long argued that this policy was counter
to the principle of patenting where the inventor who
had invested heavily to invent a drug would be denied
returns based on Government-initiated controls. India
has a unique problem where a majority of its citizens
cannot afford expensive drugs and that sponsored this
requirement. Following hectic lobbying by the US-India
CEO Forum, the Government has withdrawn this
requirement so the country does not appear to dissuade
the flow of new drugs, investments, and research.
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