Tuesday, June 30, 2009
The FTA will enable member countries to reduce tariffs for more than 4,700 categories from January 2010 onwards, senior government officials told FE. Diplomats from some members of Asean like Vietnam, Malaysia and Indonesia opined that India should reduce the duties on the four products palm oil, tea, coffee and pepper. The duty ranged between 50% and 60%.
India has agreed to cut import duties on crude palm oil by 37.5% and on refined palm oil by 45% by 2018.
Both India and Asean have attained growth in exports at rates higher than the global average over the last two-decades. The trade between the two sides accounted for an average of 9% of India's total trade in the last three years. However, Indo-Asean trade, which has been growing at a compounded annual growth rate (CAGR) of 27% since 2000, stood at $38.37 billion in 2007-08.
Singapore and Malaysia have been India's most prominent trading partners as far as bilateral trade between India and individual Asean countries for the entire period is concerned.
From 1997 to 2008, the two-way trade between India and Asean countries witnessed an approximate seven-fold increase from the level of $5.9 billion to more than $38.37 billion in 2007-2008.
"With a trade volume of $5.83 billion in 1996, the 'East Asian Crisis' gave a hammering blow to this impressive growth resulting in a very little growth in absolute terms for the following two years. The trade picked momentum post 1999-2000, both in absolute and percentage terms and is moving in the positive direction since then," explained officials.
Growth in India's exports to Asean in recent years has been impressive as compared to other important destinations. As far as its imports from Asean countries are considered, the same is not true. Though it showed some improvement in the last year.
Talking to FE, Ficci officials explained to FE, "Asean's position in India's total trade relative to EU and North America has improved between 1997-98 and 2006-07. While the share of EU and North America in India's exports has been constantly declining, the share of Asean has been on the rise. Similarly, shares of both EU and North America in India's imports have been eroded in the last decade, but that of Asean recorded an increase."
In 1996, Singapore and Malaysia accounted for about 75% of India's imports from Asean. Singapore continues to be among the top four investors for India. Indian investments in Singapore are also growing. The cumulative FDI inflow to India from Singapore during April 2000-November 2008 was around $6.34 billion. Bilateral trade between India and Malaysia amounted to $8.57 billion during 2007-08, an increase of 30.07% over 2006-07 when it was $ 6.59billion.
However, officials observed that there has not been significant change in the product composition of India's major exports to Asean since 1991-92 with exception of electronic goods and sugar as some of the leading export item by 2001-02.
An assessment of shares commanded by India and Asean in each other global trade illustrates the asymmetry in market penetration. While Asean enjoys a pre-eminent position in India's import market, India's share in Asean's global imports has been a bit modest. In particular, while Singapore, Malaysia and Indonesia occupy fairly respectable share in India's total imports, the converse is not true.
In contrast to India's small and sluggish share in Asean's global imports, there has been a rise in corresponding figures for China over the years. A micro level analysis of Asean countries' imports reveal that Chinese goods not only forced India to loose its market share in certain products (eg textiles and apparel for Indonesia; hides and leather for Malaysia as well as Singapore) but also out-performed India in the product groups where it had a growing share (for instance, stone/cement/ceramics for Indonesia; footwear for Malaysia; vegetable products for Philippines), Ficci officials said.
Similarly, increased intra-Asean imports made Indian products loose ground in the Asean market.
This was conveyed by PricewaterhouseCoopers (PwC) associate director Robin Roy on Monday in Mumbai while presenting the latest global survey done by his firm on wealth management and private banking.
In 2007, such a survey done by PwC had 20 wealth managers in India. However, the firm's latest survey encompassed the views of 10 wealth managers from the Indian banking industry. The other 237 wealth managers that participated in the latest survey were from 39 foreign countries.
Roy said, 'Our survey suggests that investment in equities is no more the prime focus of Indian HNIs due to the volatility observed on bourses. The HNI population in India now prefers to gain sustained returns over a period of time while deploying a sizeable chunk of their funds in debt instruments. Investments in gold, and arts crafts and paintings too are preferred avenues for them.'
As per the PwC study, due to lack of quality service and poor investment performances, many HNIs have disassociated themselves with wealth management services offered by private banks in India.
The buoyancy observed in UAE's real estate market is also due to Indian HNI's increasing preference for alternate investments over locking funds in traditional capital market instruments, Roy said.
PwC survey indicates that Indian wealth management services industry is expected to undergo a massive consolidation in the next two years. 'It will be very difficult for any small boutique firm offering wealth management services to Indian HNIs if its assets under management (AUM) are not worth at least Rs 500 crore. Servicing HNIs is a costly business in India, mainly due to fees charged by wealth management professionals and the taxation.' The responses of foreign wealth managers operating in the global markets revealed in the survey that placing clients at the centre of the business model, providing objective advice and possessing a strong brand are keys to success.
Through this partnership, Mylan and Biocon bring together highly complementary capabilities that will significantly advance their efforts to secure a leading position in the emerging generic biologics industry.
The generics segment in the pharmaceutical industry, which is currently based almost entirely on chemically synthesized drugs, is poised for a changing paradigm.
The pressure to lower health care costs is galvanizing governmental efforts globally to facilitate the entry of generic bio-tech or protein derived drugs.
An estimated 25 billion dollars worth of biologics will have lost patent protection by 2016, creating a significant market opportunity for protein therapeutics like insulin and its analogs, erythropoietin, human growth hormone, monoclonal antibodies and many others.
The complexity and costs involved in developing generic biologics are expected to see only a few players being able to gain entry into the highly regulated markets of Europe and USA. Bio-generics in the emerging markets are expected to grow from the current estimate of 1.5 billion dollars at a projected rate of over 20 per cent per annum over the next five years.
Biocon is well positioned to capitalize on these opportunities through its early investments in research, development and manufacturing of high quality protein therapeutics, including both novel biologics and bio-generics.
Combining this with Mylan's regulatory and commercialization capabilities in US and Europe creates a cost effective model to address a large, emerging opportunity for generic biologics recently supported by the Obama administration.
Biocon Chairman and Managing Director, Kiran Mazumdar-Shaw said: "Biocon is extremely pleased to have found a partner as strong as Mylan to accelerate our work in generic biologics and take it to the next level around the world, especially in regulated markets. I am confident that our shared vision for the sector, complementary skills, mutual respect and work ethic will make this collaboration a remarkable success while bringing additional value to Biocon and its shareholders."
"Monoclonal antibodies are emerging as the most dominant class in biologics. Through this partnership we hope to deliver high quality, affordable bio-generic antibodies and biologics, thereby addressing a critical need to lower spiraling healthcare costs in both the developed and emerging economies," Kiran added.
Mylan's Chairman and CEO, Robert J. Coury said: "I am extremely excited to be able to announce what I consider to be one of the more comprehensive and high quality biologics initiatives reported within the industry to date. This unique collaboration combines Biocon's scientific expertise; excellent product development track record; appreciation of complex regulatory requirements; and state-of-the-art, cost-efficient and scalable biologics manufacturing with Mylan's one-of-a-kind global commercial footprint and our regulatory expertise around the world. Biocon also has a unique corporate culture that is very similar to Mylan's."
"All of these attributes will provide a critical synergy and create a strong and effective long-term partnership. Generic biologics, especially monoclonal antibodies, are expected to become the next great bolus of growth in the generic pharmaceutical industry, and through this alliance, Mylan and Biocon have covered all four corners of what any organization would want or need to have secured to offer a highly competitive and distinct generic biologics product portfolio with tremendous growth potential for the coming decade," Robert added.
As part of this collaboration, Mylan and Biocon will share development, capital and certain other costs to bring products to market.
Mylan will have exclusive commercialization rights in the U.S., Canada, Japan, Australia, New Zealand and in the European Union and European Free Trade Association countries through a profit sharing arrangement with Biocon.
Mylan will have co-exclusive commercialization rights with Biocon in all other markets around the world. All other financial terms and product details remain confidential.
Sunil Mittal also told Reuters the group had not yet held talks with the Indian or South African governments about the proposed merger.
"I'm sure that when we approach them (the governments) in the appropriate time we will get a very good response," Bharti Airtel's Chairman Mittal said on the sidelines of the Global Leadership Summit in London.
MTN and Bharti, India's leading cellular firm, have revived talks aimed at creating the world's third-biggest wireless group with more than 200 million subscribers and combined revenue of $20 billion.
The chief executive of MTN's biggest shareholder, state pension fund Public Investment Corporation (PIC) told Reuters earlier in June the fund supported the talks but said there was "room for improvement" on the price.
Asked if they were considering sweetening the deal, Mittal said that is "something that is not engaging our minds at the moment. We're working towards our closure and a lot of work has to go on around that.
"I won't say yes or no."
Asked whether he felt the dealings with regulators would be smooth, Mittal said Bharti Airtel would "meet all the conditions that will be required to be met."
Both companies have agreed to hold exclusive negotiations until July 31 but Mittal said he had "no visibility" on whether the deadline could be extended.
MTN said earlier on Monday that Finance Director Rob Nisbet had resigned, prompting concerns he may not have been in favour of the proposed tie-up.
Mittal told Reuters he had not been aware of the situation with Nisbet until he saw it reported, but said these changes within a company will happen.
The six core industries grew by 2.8 per cent in May 2009 against 3.1 per cent in the same month last year on improved production in cement, coal and electricity.
The growth rate of six core industries -- crude oil, petroleum refinery products, coal, electricity, cement and finished steel -- was 4.3 per cent in April.
Cement production increased by 11.6 per cent in May against 3.8 per cent a year ago, while coal production rose by 10.2 per cent during the month against 8.8 per cent in May 2008.
Electricity generation grew by 3.3 per cent in May 2009 against a growth rate 2 per cent in the same month last year.
However, crude oil production contracted by 4.3 per cent in May, while it had a growth rate of 3.2 per cent in the same month last year.
Production in petroleum refinery products too shrank by 4.3 per cent in May compared to a growth rate of 0.1 per cent in May 2008.
Finished steel posted a growth rate of 1.4 per cent in the second month of 2009-10 fiscal against 3.3 per cent in the same month last year.
Yet the same educational establishment that refuses to close down dysfunctional government institutions pretends that it cannot allow private ones, because this may lower standards! The market has weeded out substandard industrialists, and will weed out substandard private schools and colleges too. The government should create an independent rating agency that makes educational quality transparent, and ratings must apply as much to government institutions as private ones.
Foreign universities should be welcomed, including for-profit ones. India has a comparative advantage in the low-cost skills needed for education, and can become a global educational hub attracting global students — provided controls are lifted on fees and private institutions. The creation of human capital is a commercial enterprise no less than the creation of industrial capital.
Basu makes the point that the government lacks the money for creating hundreds of universities, and so should focus on creating a score world-class ones. These should pay top academics several times as much as run-of-the-mill academics. The Yashpal Committee is too socialist to stomach this: it prefers the existing, rotten system that pays everybody the same low level, and so induces every decent academic (Basu himself is an example) to seek greener pastures abroad.
Privatisation of education is a fact of life, and needs to be encouraged rather than viewed as a scandal. But for private engineering colleges, India could not have become a world power in auto components or software: the IITs produce the generals but the private colleges provide the troops. Basu adds rightly that replacing existing regulatory bodies by a super-regulator means very little if the latter has the old licence-permit mind-set. Such bureaucratic fiddling must not be confused with genuine reform.
"We have recently raised 10 billion rupees through tier 2 capital and we are planning to raise another 10 billion rupees through tier 1 perpetual bonds and tier 2 capital in FY10," J.M. Garg told reporters in an industry conclave.
Even as Hindustan Unilever Ltd (HUL) is sharpening its focus on innovations and brand communications, Amul is extending its production capacity and retail network to pump up volumes.
To sustain its leadership in the branded ice cream sector, Amul is in fact chalking out a fresh game plan for FY10. In essence, the branded ice cream sector in India will witness a major tussle between these two players. On Amul's growth strategy, RS Sodhi, chief general manager, Amul said: "We are increasing our production capacity to meet consumer demands. We just joined hands with the Co-operative Milk Union in Puducherry to manufacture ice creams there."
Currently, Amul has manufacturing facilities in major metros, which include Bangalore and Chennai.
In a bid to reach out to a wider target audience, Amul is extending its new retail initiative, 'Ice-cream Scooping Parlours' from 60 to 200 across the country. The company is also extending the number of 'Amul Parlours' from 4,000 to 10,000 in FY10." With a market share of 39%, we currently lead the pack in this sector. Our core focus is on both impulse and take home segments," added Sodhi.
Across the road, Amul's arch rival HUL has rolled out a host of new launches in the last few months. The accents seems to be on 'innovation' at HUL. According to HUL, the company is paying attention to expansion of cabinets infrastructure for increasing availability, improved customer services and strong brand communication to ensure that the business continues to perform well in FY10."
Our ice ream business sustained its growth momentum and delivered strongly in both impulse and take home segments last fiscal. The business fully uses its access to Unilever's portfolio of brands and innovations to offer products suitable to Indian consumers," according to the company.
Anup Sheth and two others had filed applications, objecting to the merger scheme in its present form. Justice AM Khanwilkar has sanctioned the merger, but stayed the order for four weeks, so that Sheth and others could file an appeal before a division bench. The objectors had demanded that High Court should order an inquiry by the Securities and Exchange Board of India, the Reserve Bank India and other financial governing bodies before sanctioning the merger.
The petitioners had said that the valuation of shares for arriving at the exchange ratio (for the purpose of merger) was not fair and correct, as several financial aspects were not taken into consideration. The valuation also overlooked several facts and circumstances and assets and liabilities, they had contended. But the High Court, however, dismissed these objections, and approved the merger.
On March 1 this year, RIL's board had finalised the merger with RPL. As per the terms of the merger, RPL shareholders would get one RIL share for every 16 shares held. The merger ratio was slightly in favour of RPL, marketmen had said. RIL was to issue 6.92 crore shares to RPL shareholders following the merger.
The merger of Reliance's refinery subsidiary (RPL) with itself makes the company one of the world's largest refiners and the combined crude oil processing capacity will be 1.24 million barrels per day, RIL had said in a press statement. The merger also led to RIL acquiring the 5% stake that US oil major Chevron had held in RPL. Before the merger, RIL held a 70.38% stake in RPL, which it increased it to 75.38% after buying the Chevron stake.
However, in a convened meeting of equity shareholders, secured creditors and unsecured creditors of RIL held on April 4, 98.86% of the shareholders present in person/proxies, representing 99.9998% of the total value of the equity shares held by them, voted in favour of the scheme of amalgamation, Shareholders representing 0.0002% of the total value of shares voted against the scheme.
In the Budget for 2009 because of the economic slow down, the task of the finance minister is very difficult. The economy needs money for pump priming the economy whereas the people want lesser taxes. The wish list of the corporate and the taxpayers is very large and the government has constraints in view of the fact that large sums of money are required to bring economy back into the shape.
The aim of the budget should primarily be to bring employment back in the Indian economy. Employment can be generated through investment in infrastructure projects such as construction, roads, bridges, powers, ports, hospitality etc. There is shortage of residential houses in the country. Incentives can be given to buyers in the form of cheap loans so that the housing industry can boom again. The deduction of interest in the hands of the home buyer can be increased from the present Rs 1.44 lakh.
Incentives in the form of deductions can also be given for the other infrastructure products which have been listed above so that the work goes on in a faster manner.
In the last 4-5 months Indian exports have dwindled and this has led to loss of thousands of jobs. There is a need therefore to give incentives for the export sectors. After all, employment is more important than taxation and if employment increases, the economy will revive which can lead to a larger collection of direct taxes.
One very important aspect in any taxation system is the administration of the tax regime. The tax regime has to be designed in such a manner that tax compliance becomes less costly and less burdensome. In this connection, the finance minister may consider introducing a system of alternate dispute mechanism both for Indian taxpayers and the foreign taxpayers because this would bring certainty at very early stage to the tax disputes which arise. The finance minister may also consider reviving the Income Tax Settlement Commission again as it was a safety valve which is necessary in any system.
The taxpayers want relief in the form of higher exemption limit, abolition of FBT etc. Many of the claims of the taxpayers are correct. In my view, the finance minister could consider constituting an ongoing Tax Commission where the various groups can present their cases and the government can then take a decision on the recommendations of the Commission. One of the items before the Commission should be the improvement in tax administration. This would help the government in giving relief to the taxpayers considering the legitimate needs of the government
Retail inflation is high because food price inflation is high. This is due to a flawed procurement price policy, exchange rate depreciation further pushing up high border prices, and inefficient wholesaling. These are not factors that a compression of demand can cure. But since food continues to have a high share of average consumption baskets, food price inflation tends to push up wages and the general price level. Delicate balancing is required, therefore, to anchor inflationary expectations and yet stimulate a supply side response.
Inadequate attention to such structural factors has in the past triggered and prolonged slowdowns. The typical response to food and oil price shocks has been a monetary tightening, together with administrative interventions that created inefficiencies over time.
Hidden charges raised costs making inflation sticky, while populist giveaways deteriorated government finances. So further tightening followed. More nuanced policies that shift down the supply curve are required. Short-term, such policies are changes in tax, tariff and exchange rates, while long-term policies would raise productivity.
The current crisis has made possible a break in the vicious cycle of loose fiscal and tight monetary policies. Post-Lehman, the US pushed for a global stimulus. The argument was with output below potential in most countries a concerted push was required. This was a big change from the normal pressure on emerging markets to tighten their belts in crisis times.
For once they pushed us in the right policy direction since they were themselves involved. World output may be below potential today but it is always below potential in populous emerging markets in a catch-up phase. Supply bottlenecks, however, push up an elastic supply curve. Therefore, policy must act in a coordinated way to keep demand high but remove supply bottlenecks. If supply is elastic a demand tightening has a large output cost with little reduction in inflation.
The concerted boost, as the RBI adopted unusual policies and accommodated indulgent fiscal giveaways, has compensated somewhat for the fall in private demand and kept Indian growth rates at respectable levels. But this combination cannot continue indefinitely. The worst outcome will be a return to tight monetary policy while fiscal deficits continue to balloon.
The budget should present a credible path of fiscal consolidation, showing how government expenditure will shrink as private expenditure rises. It will be credible if, first, detailed expenditure planning gives expenditure caps and targets to ministries. Second, strict prior funding norms are instituted for populist transfers while productive expenditures that relieve supply bottlenecks are increased.
Third, better accounting, reporting and management systems to ensure expenditures are actually made, with minimal delay and waste. Then impact on green shoots would be maximal and real improvement replace cosmetic compliance with the FRBM. This would be the best fiscal stimulus.
What about monetary policy? Lower interest rates reduce pressure on government borrowing. But there is little leeway for further cuts in short-term policy rates. Considering an average inflation rate, across components and time, real short-term interest rates are negative. The current structure of inflation is doubly unfortunate. High CPI inflation means savers face a negative real interest rate. Low WPI or producer price inflation means industry faces high positive real interest rates.
But real loan rates are not that high since the negative inflation is just a statistical base effect. CPI has more lags but should reduce in future. Although high food price impact inflationary expectations, negative external demand shocks and lower commodity prices help to contain them.
The real action now has to be in coaxing cuts through the structure of interest rates. Loan rates are sticky but are slowly coming down. Leaving rates to banks, policy should focus on the tardy credit channel. Apart from general liquidity support, special schemes can alleviate blocks in credit flow to export firms and MSMEs. These should not force credit to unviable firms, but compensate for systemic fear-driven freezing. Talk of withdrawal of liquidity is dangerous until recovery is firmly established. The Great Depression was prolonged because of premature withdrawal of stimulus. Much of the liquidity is being re-absorbed in the daily LAF (liquidity adjustment faci
The other important contribution the RBI can make is to clearly communicate its current support for the government’s borrowing programme, to abate market pressure on medium-term interest rates. The traditional RBI stance always pointed to problems created by large government borrowings, thus enhancing market hysteria. But this is not the time for that. The RBI has many instruments such as OMOs available to lower rates through the term structure.
The annual monetary policy, in a good beginning, made this clear and pointed out that market absorption of fresh government securities would actually be lower than in recent years of high inflows.
Some general lessons can be drawn for the interest rate channel. Banks pass on rate rises faster. So the tug on the string should be mild. Banks and markets will help push it through the system. A gradual rise can ameliorate a boom without causing a crash. While the mild policy rate rises over 2004-07 sustained high growth but moderated housing bubbles, the sharp rise in 2008 punctured industrial growth. But policy rate cuts should be fast in a downturn.
If further cuts are expected, banks hold appreciating bonds rather than provide credit, consumers postpone purchases, and firms wait for lower loan rates. Banks moderate the spread of the cut, and therefore the shock of a large change in rates. Further marginal policy adjustments can depend on outcomes. Rate changes can be milder to the extent they are implemented in advance of the cycle.
Oil and Natural Gas Corporation (ONGC) recorded revenues of INR1,063,760 million (approximately $26,423.8 million) in the financial year ended March 2008 (FY2008), an increase of 16.9% over the financial year ended March 2007 (FY2007). The company recorded external sales of INR1,035,382 (approximately $25,718.9 million) in FY2008, an increase of 16.5% over FY2007. For the FY2008, India, the company's largest geographic market, accounted for 84.8% of the total revenues.
ONGC generates revenues through five business segments: Indian offshore exploration and
production (38% of the total external sales in FY2008), Indian refining operations (29.5%), Indian onshore exploration and production (16.5%), Outside Indian operations (15%), and unallocated (0.9%).
Revenue by segment
In the FY2008, the Indian offshore exploration and production segment recorded revenues of
INR393,820.6 million (approximately $9,782.5 million), an increase of 14.9% over FY2007.
The Indian refining segment recorded revenues of INR305,889.6 million (approximately $7,598.3 million) in FY2008, an increase of 16.8% over FY2007.
The Indian onshore exploration and production segment recorded revenues of INR171,099.5 million (approximately $4,250.1 million) in FY2008, an increase of 1.6% over FY2007.
The outside Indian operations segment recorded revenues of INR155,593.2 million (approximately $3,864.9 million) in FY2008, an increase of 42.8% over FY2007.
The unallocated segment recorded revenues of INR8,979 million (approximately $223 million) in FY2008, an increase of 27.1% over FY2007.
Revenue by geography
India, ONGC's largest geographical market, accounted for 84.8% of the total external sales (excluding unallocated sales) in the FY2008. Revenues from India reached INR870,809.7& million (approximately $21,630.9 million) in FY2008, an increase of 12.6% over FY2007.
Countries outside India accounted for 15.2% of the total external sales (excluding unallocated sales)in the FY2008. Revenues from countries outside India reached INR155,593.2 million (approximately $3,864.9 million) in FY2008, an increase of 42.8% over FY2007.
This comes ahead of an important Bombay high court hearing on 2 July. The court told the warring parties on 22 June to settle their dispute, or else it would pass an order.
“Executives from Jet Airways and Sahara India are in discussions to reach an out-of-court settlement. Though the terms and agreements are not finalized, a consensus will be arrived (at) in (the) next 30 days,” said one of the executives. Neither of them agreed to be identified.
“The discussions are progressing towards a settlement, but nothing concrete has happened,” said a senior Sahara India executive, also on condition of anonymity.
The final round of the meetings for the settlement, led by the top brass of both Jet Airways and Sahara India, was scheduled for Monday.
On 9 June, Jet Airways founder chairman Naresh Goyal said: “Our lawyers are talking to reach an out-of-court settlement,” without revealing further details.
Sahara India had on 26 March filed an application with the Bombay high court claiming Jet Airways had defaulted on payments towards the purchase of Air Sahara, and had sought the court’s permission to seize Jet’s assets. Sahara India was demanding the original price of Rs2,000 crore for the airline, instead of the renegotiated price of Rs1,450 crore.
Jet Airways bought Sahara Airline—which operated Air Sahara—in April 2007, and later rebranded it JetLite.
In its buyout agreement dated 17 April 2007, Jet Airways had agreed to pay Rs550 crore each in four equal instalments beginning March 2008 through March 2011. Jet had paid Rs900 crore by 20 April 2008.
In March 2008, the income-tax department demanded pending taxes of Rs107 crore from Sahara Airlines, now owned by Jet.
For its part, Jet Airways argued that since the amount was due from before the acquisition, it was not responsible for the liability. It then deducted Rs37 crore from its March 2008 instalment.
According to the other Jet Airways executive, who is also close to the development, the airline has proposed paying its instalments without deducting any tax liability and paying interest on the amount delayed.
“The terms and conditions of this proposal are yet to be finalized. We are discussing best possible ways to reach a settlement on this dispute,” he said.
Under the new proposal, Jet Airways will give one instalment in advance and pay Sahara India the deducted Rs37 crore, on account of tax liability, which was the trigger for this recent litigation.
“Though this will result in an outgo of more than Rs300 crore, there is no other way to settle this ongoing dispute,” the same Jet executive said.
A Jet Airways spokeswoman declined to comment as the matter is sub-judice and her airline will update the Bombay high court on 2 July, when the court is expected to give its judgement if an out-of-court settlement has not been reached by then.
Mint could not reach Jet Airways executive director Saroj K. Datta and chief executive officer Wolfgang Prock-Schauer despite repeated efforts.
On 22 June, the Bombay high court had asked both sides to settle the dispute by 2 July, and had said it would pass an order if they failed to do so. Justice Dhananjay Chandrachud deferred the ruling after representatives of Jet Airways and Sahara India expressed their willingness to settle the dispute. Jet Airways had asked for time till 9 July, but the court asked both sides to settle the issue before 2 July.
“The out-of-court settlement is going to take time. We will seek more time from the court on 2 July,” the Jet executive mentioned first said.
Jet Airways shares rose by 3.09% on the Bombay Stock Exchange, or BSE, on Monday, to close at Rs238.40. The benchmark Sensex rose 0.14% to 14,785.74 points.
Jet Airways posted a stand-alone net profit of Rs52.99 crore for the quarter ended 31 March. For the financial year ended March, the stand-alone net loss for Jet Airways was Rs402.34 crore, compared with Rs253.06 crore the previous year.
In an unrelated development, the Directorate General of Central Excise Intelligence, the agency responsible for monitoring evasion of excise and service tax, last week issued a show-cause notice to Jet Airways relating to a potential service tax liability of at least Rs400 crore.
A show-cause notice is not an indictment, and only seeks an explanation from a company—Jet Airways, in this case—typically within a month.
This “led to accumulation of false balances in deposit accounts in the books of the company”, the capital market regulator says in the report.
On Monday, the Andhra Pradesh high court dismissed bail petitions filed by Gopalakrishnan and Talluri, saying the investigation into the scam was at a critical stage, according to the counsel for the auditors, C. Masthan Naidu. The auditors have been in custody since 23 January.
According to T. Niranjan Reddy, counsel for the Central Bureau of Investigation (CBI), judge G.V. Seethapathy agreed with CBI that prima facie evidence existed on the diversion of funds and collusion of the auditors with Satyam’s promoters in the country’s largest accounting scam.
Sebi is one of the several regulatory agencies probing the Rs7,136 crore fraud to which Satyam founder B. Ramalinga Raju confessed on 7 January. The software services firm was acquired in April by Tech Mahindra Ltd.
Other agencies involved in the probe are the Serious Fraud Investigation Office of the corporate affairs ministry, CBI, the Registrar of Companies and the Institute of Chartered Accountants of India (Icai).
Police arrested Ramalinga Raju, his brother and then managing director B. Rama Raju, then chief financial officer Srinivas Vadlamani and the two auditors for their alleged involvement in the scam, which triggered India’s biggest corporate fraud investigation.
Sebi has found “grave professional lapses on the part of the auditors”, which are “directly tied into and inseparably a part of the fraud perpetrated in the capital market”, the Sebi report says.
According to the market regulator, the action to be taken against Price Waterhouse and its two partners may include prohibiting them “from issuing any certificate with respect of compliance of obligations of listed companies and intermediaries registered” with it.
The report says Price Waterhouse and its partners may be restrained “from accessing the securities market and prohibited from buying, selling or dealing in the securities of Satyam and its associate listed companies in any manner whatsoever for a particular period.”
Sebi, however, has not specified any time frame for this. The investigation is not complete and Sebi’s report is an interim one listing possible action. Sebi has issued a show-cause notice to the accounting firm and received its response.
A show-cause requires a firm—Price Waterhouse in this case—to explain its position. Sebi officials declined to comment on the report and its findings.
Price Waterhouse confirmed that it received a notice from Sebi some months ago as part of its investigation, but denied any knowledge of the report.
“We are actively responding to Sebi in relation to its enquiries. This is an ongoing investigation that is some way from being completed. We are not aware of any Sebi report making any recommendations,” the audit firm said late last week in an emailed response to Mint’s query. It also said, “Price Waterhouse remains committed to cooperating with the various agencies looking into the Satyam situation, including Sebi.”
Sebi has observed that Price Waterhouse had failed to comply with the code of ethics issued by Icai, the accounting regulatory body, as well as auditing standards generally accepted in the country, and “given false assurance that the financial statements are free of material misstatement”.
In a significant comment about insider trading, the market regulator said, “The financial results of Satyam were overstated and its promoters and insiders knew about it.
“When they were selling the shares of Satyam over the years when in possession of this unpublished price sensitive information, this led to insider trading. Price Waterhouse and its two partners are responsible for this by certifying the financial statements of Satyam in violation of well established auditing standards and practices.”
By avoiding the political pain that a real (and sincere) restructuring would have caused, the government continued to pour good money after bad. The government’s subsidised financing included a bailout in September 2004. As our government plans a similar bailout of the ailing Air India, policymakers should imbibe the lessons from the Alitalia fiasco.
Throwing money at a drug addict without reforming him only perpetuates his abuse and shortens his life. Similarly, providing subsidised financing to Air India without a true restructuring would be akin to writing its death verdict. To be successful, this restructuring requires several elements.
As in the Alitalia bailout, the government intends to infuse equity into the ailing company. To avoid a similar outcome, the bailout plan should have the following components: (i) the government should provide capital in the form of “convertible debt;” (ii) the lending decision should be made by a syndicate comprising the government as the largest lender and a consortium of commercial banks; (iii) the consortium should bear some percentage of the last losses on this security; and (iv) existing Air India debt should be restructured through partial debt-for-equity swaps.
As an investor, the government should maximise its return on investment; after all, taxpayers’ money has a high opportunity cost since this capital could fund necessary infrastructure instead. Academic research in finance points out that debt financing can enhance organisational efficiency since debt financing bonds the management of the company to make periodic interest payments. While the government’s plan includes a monthly review by a four-member committee of secretaries, the necessity to make periodic interest payments to the lending syndicate will have the hard binding effect that monitoring cannot accomplish.
Why convertible debt instead of plain, vanilla debt? Convertible debt would provide the government the option to convert into equity. Typically, investors of convertible debt convert into equity when they expect the company’s performance to shoot north. The government could do likewise once Air India’s restructuring exhibits signs of success.
How should the parameters of the convertible debt – such as the interest rate – be set? This brings me to the second component of the bailout plan.
The financing must minimise the risk that Air India wastes the resources without implementing the necessary restructuring. For example, while Eastern Airlines filed for bankruptcy in the United States in 1989, it failed to undertake the necessary restructuring and kept flying until its asset value had been driven down to zero. To avoid this problem, I propose that the lending decision be made by a syndicate comprised of the government as the largest lender and a consortium of commercial banks. To align the consortium’s incentives, some percentage of the last losses on the security must be borne by the consortium. In this way, the government would ensure monitoring of Air India’s post bailout performance by both the private parties and the government.
The bank consortium could also put together a restructuring of Air India’s existing debt. Without such restructuring, any capital infusion by the government will only serve to fulfil existing debt holders’ obligations. Reducing Air India’s leverage through debt-for-equity swaps will enable it to use the capital infusion to fund necessary investments and emerge healthy after the bailout. The bank consortium could also arrange “bridge financing” that Air India needs to tide over its current liquidity woes.
Before providing Air India the financing, its management needs to put forward a concrete plan encompassing strategic, financial and operational aspects. On the strategic side, a critical analysis of the international and domestic routes and their profitability must lead to specific entry/ exit decisions for each route.
On the financial side, Air India needs to decide if it is going to hedge the risk posed by oil price fluctuations. Since its primary business is that of an airline, its competence does not lie in predicting future oil prices. Therefore, prudence demands that Air India hedge this risk.
On the operational side, the management needs to be forthright about the wage and manpower cuts that are necessary to trim its waistline. The government must commit to implementing these hard decisions. For example, the Alitalia management had requested a workforce cut of 5,000 out of the 20,700 existing workforce in September 2004. The Italian government dragged its feet on the politically sensitive decision and the resulting cut was restricted to 2,500 – half the originally slated target.
The outcome that befell Alitalia is one that Air India must avoid at all costs.
Monday, June 29, 2009
Analysts are expecting the new government to continue to favour a low interest rate regime. Since the Reserve Bank of India (RBI) has already reduced the policy rates many times in the last few quarters, drastic rate cuts from the current levels are not expected.
However, there is definitely some room for smaller rate cuts and to take steps to ensure that the benefits of lower policy rates are passed to all borrowers.
Low Interest Rate Regime
Indications from senior government officials confirm that the new government will take the necessary steps to keep the interest rates under control. The government is putting pressure on banks to reduce home loan interest rates for current borrowers, to bring them on par with the new loan accounts.
Currently, the public sector banks are offering lower interest rates, lower processing fee, lower pre-closure terms etc on new home loans. Since the inflation rate is at a historic low, many analysts expect a further rate cut in the RBI's policy interest rates.
However, since the liquidity situation is good and business/consumer sentiments are looking positive, a drastic cut in the key policy interest rates seems unlikely. The government is more likely to push banks to cut their lending rates, and pass on the entire benefits of the earlier rate cuts to the borrowers.
Focus on infrastructure development
It is a well-known fact that infrastructure has been a bottleneck in the economic progress of the country.
Analysts expect concrete steps from the government on the infrastructure development front.
It will be interesting to watch the initial steps taken by the government in terms of attracting foreign and private players' participation in infrastructure projects.
The fiscal deficit situation has reached a much higher level due to the stimulus packages announced towards the end of last year. The government has to find ways to fund this fiscal deficit and the infrastructure projects. Analysts believe that disinvestment in some public sector undertakings is certainly one way to generate the required funds.
However, another opinion is that the fiscal deficit will be dealt with in a phased manner spanning the next five years. It would be interesting to see how the government uses the funds towards the infrastructure projects.
A stable government at the centre will help in attracting further investments from foreign funds - both foreign institutional investors (FII) and foreign direct investments (FDI). This will help in maintaining the liquidity situation in the market and also provide a cushion to various infrastructure development projects. It will indirectly reduce the demand for funds from banks and hence put an indirect pressure on the borrowing interest rates.
It is safe to infer that the interest rates on home loans are going to remain stable with a slightly negative bias in the medium term.
The interest rates on new loan accounts have already come down quite significantly. The rates on existing home loan accounts are expected to drop further due to a push from the government.
Those planning to take a new loan to buy a house should go for it after evaluating the terms and conditions of the lending bank.
"A strategic partner will be a better option...provided the government is favourable to that idea," a source, working closely on the listing of the PSU and involved in negotiations with the employees' unions, said.
BSNL's valuation has been pegged at about 100 billion dollars and the PSU has a paid up capital of about Rs 5,000 crore (1.04 billion dollars), but any investor will be willing to pay top-money to be BSNL's strategic partner given its countrywide strong network.
BSNL had reported a revenue of Rs 38,000 crore and a net profit of Rs 3,000 crore in the last fiscal and this year the company has projected a dip in both, mainly due to lower average revenue per user (ARPU) and if the trend continues for few years the company's long term plans may suffer.
Asked why a foreign strategic partner should be favoured over listing and disinvestment, sources said "...because when they come they can have a say in the management and change the face and culture of the company."
There are many big foreign telecom operators, like AT&T, France Telecom and others, who are looking at entering the Indian market and these companies are in talks with some of the private service providers.
“This (absence of Maruti 800 and Omni) would mean no direct competition to Nano. The important question is whether Tata Motors would be able to manufacture enough units of Nano that would meet the demand.” said Kapil Arora, Partner (Automobile), Ernst & Young.
Although Nano could become the highest selling car in its segment, it would take some time to contribute to Tata Motors’ sagging bottomline. Mr Arora said Tata Motors, which suffered a Rs 2,500-crore loss last year largely due the tribulations of its UK subsidiary Jaguar and Land Rover, needs to sell at least 2.5 lakh units of the Nano to make money from the world’s cheapest car. The company may be in a position to produce the Nano in these numbers only by the end of 2010 once its plant at Sanand, Gujarat becomes operational.
The entry-level Maruti 800, the flagship product of Maruti Suzuki India, is priced at Rs 2.15 lakh. The basic version of the Nano is pegged at Rs 1.35 lakh though other version with more more features cost more.
“The pricing strategy of the product is not decided yet. The price of the Nano could go up. The margin at the moment is wafer thin, “ he added. The company spokesperson said: “The first one lakh allotments (of the Nano) are price-protected as prices were declared at the launch. For others, should circumstances require any pricing decision, it will be intimated to them (customers who have booked the car) at the time of delivery.” The company is also planning to launch the diesel version of the Nano. There has been speculation that the diesel Nano could cost around Rs 2 lakh, making it the cheapest car in the category.
The government can ill afford tax cuts as they could dent revenue receipts and widen an already bloated fiscal deficit, while an increase in the tax burden could reverse the stimulus needed to accelerate growth.
The budget may outline tax reforms such as introduction of a new Goods and Services Tax from April next year, aimed at reducing the burden on companies.
Following are some of the likely tax proposals, according to industry groups, tax consultants and media reports.
* Likely to keep corporate tax rate unchanged at 30 percent.
* May consider tweaking Fringe Benefit Tax, levied on perks given to employees by a company, and Minimum Alternate Tax paid by firms who have book profits but report net loss. Both are at 10 percent now.
* Tax breaks likely for infrastructure and exporting firms. * Tax exemption on the portion of profits set aside by companies for investment, and an increase in the depreciation rates to 25 percent from 15 percent for plant and machinery to speed up capacity expansion.
* Relief to individuals by raising tax-exempt savings limit beyond 100,000 rupees ($2,079).
* Raising exemption limit on interest paid for home loans beyond 150,000 rupees to boost housing sector, and raise demand for cement and steel.
* Slowdown in economy led to a 43.6 billion rupee shortfall in corporate tax receipts in 2008/09 (April/March) compared with the initial budget target, while the shortfall was 157 billion rupees for income tax.
* Unlikely to change excise or factory-gate duties after they were cut by 2 percentage points each in December and February to stimulate a slowing economy. Most of the manufactured goods attract 8 percent duty now.
* Customs duty levied on imports might be retained at present levels of around 10 percent. Industry lobbies have demanded cuts in the duty rates on some industrial inputs.
* Excise duty cuts and decline in factory output in the latter half of 2008/09 led to a revenue loss of 300 billion rupees, while a fall in imports and lower crude prices dented customs duty receipts by 109.3 billion rupees in 2008/09.
* There was some talk of raising tax rates on services beyond 10 percent, but the finance ministry may not tweak them. Only 100 major services are taxed and there is scope to extend the levy on more services.
* Service tax receipts grew marginally to 650 billion rupees in 2008/09, compared with an earlier target of 644.6 billion rupees, despite a cut in the rate in February.
NON-TAX REVENUES, REFORMS
* The government aims to raise at least 200 billion rupees from sale of 3G spectrum. The auction was originally planned for January but has been delayed pending a review of the floor price.
* Stake sales in state-run firms could be actively taken up to help raise cash needed to fund infrastructure and welfare schemes.
Friday, June 26, 2009
The BWSL inauguration will be held at the northern end of the sea bridge which joins Worli in south Mumbai with Bandra in north Mumbai, the official told media here on Sunday.
A galaxy of leaders, including Maharashtra Chief Minister Ashok Chavan, Deputy Chief Minister Chhagan Bhujbal, central ministers Sharad Pawar, Vilasrao Deshmukh, Sushilkumar Shinde, Praful Patel, state ministers, legislators and parliamentarians shall attend the inaugural.
In construction for over 10 years, the new link between the southern island city and the northwest suburbs will be an alternative to the existing Mahim Causeway.
Currently, a daily traffic volume of over 1.4 million vehicles causes massive traffic snarls, especially during the morning-evening peak hours. The distance of 8 km between Bandra and Worli currently takes 60-90 minutes to cover during the morning-evening peak hours.
"After BWSL becomes operational Tuesday, this travel time will reduce to barely six-eight minutes. It will also entail savings in vehicular operating costs (VOC) of over Rs 1 billion a year," an official of the Maharashtra State Roads Development Corporation (MSRDC) said.
The chief attraction of the magnificent structure would be the two cable-stayed bridges, one 500 metres long (northern side) and another 350 metres long (southern side), for the passage of fishing boats.
The bridge rests on two towers, each 126 metres tall or equivalent to a 43-storeyed building. MSRDC has plans to provide a viewers' gallery at the top of the towers which would offer a bird's eye glimpse of the entire city.
There is a modern, automated, 16-lane toll plaza at the southern end, and the bridge has been equipped with sophisticated security and monitoring systems. Executed by Hindustan Construction Company over a period of more than 10 years, the MSRDC's project suffered a long delay of five years owing to various hiccups. The company will also maintain the bridge for the next five years.
The public sector giant, Steel Authority of India Ltd (SAIL), has provided almost two-thirds of the steel used in building the link. The BWSL has gobbled up a total of nearly 22,235 tonnes of steel of which SAIL's share is pegged at over 13,780 tonnes, according to a senior SAIL official.
"The steel is of the best quality and has come from our integrated plants. All the steel rods, if laid in a straight row, would measure almost 3,000 kilometres or the breadth of India," the SAIL official said.
Although the bridge is designed for speeding at 100 km per hour, initially the MSRDC plans to impose a 50 km per hour speed limit to enable motorists to get used to the bridge and prevent accidents. Two lanes are proposed to be reserved exclusively for buses and heavy vehicles.
Thursday, June 25, 2009
“There is a lot more confidence among our clients; they feel that the worst is behind them. Especially in the US, many customers are saying that they were aggressive in reacting (to the recession)-they cut costs and renegotiated contracts,” S Gopalakrishnan, chief executive of Infosys told ET NOW. In a year when both Infosys and TCS have cautioned their investors on lower to negative growth in revenues, India’s $40-billion software exports industry is going through one of the toughest recessions in over two decades.
TCS, which counts Citigroup and GE among its top customers, is also seeing the first signs of recovery when it comes to the IT spending.
“We are seeing a recovery, but at a slow pace. The overall decline is slowly getting arrested. The recovery is showing but can’t predict the slope of this recovery,” N Chandrasekaran, chief operating officer, TCS told ET NOW.
Despite, financial problems and tightened IT budgets customers continue to work with offshore outsourcing companies in order to lower their operational costs anywhere between 20-30%.
As reported by ET earlier, tech biggies such as TCS, Infosys, Wipro and HCL are all set to get new outsourcing contracts worth $4 billion from top customers including British Telecom, Citi, GE and Bank of America this year. In a bid to cope with their tightened budgets, these companies plan to send their information technology works to offshore locations such as India.
Meanwhile, the ongoing slump is forcing many customers to evaluate different models of outsourcing, beyond traditional mode of structuring a contract based on number of hours and number of professionals on different projects.
“In the BSFI Segment itself I think that the downturn will drive some changes in terms of how clients engage with their partners. One major shift is shifting from capital expense to operational expense-it may be an interesting model to watch for in the future,” Mr Gopalakrishnan said. While top customers in the US are gradually beginning to discuss new outsourcing contracts, companies in Europe have been more active on the outsourcing front. According to research firm Gartner, almost 60 per cent of organisations in Western Europe will outsource more IT and business process functions in 2009, while renegotiation of existing contracts will rise to more than 60%.
“The focus on cost reduction is driving a high usage of outsourcing and global delivery in Europe in 2009 and 2010. However, under the current economic and technological conditions prices are going to decrease, creating a market full of opportunities and challenges for both end-users and external service providers,” said Claudio Da Rold, vice president and distinguished analyst at Gartner. Gartner anticipates prices of IT services outsourcing to decline by 5% to 20% through 2010.
On Wednesday, PM Manmohan Singh spent 90 minutes with aviation ministry honchos on the cash-strapped airline's woes and its demands for a bailout from the government. While he is learnt to have promised support to the national carrier, it was made abundantly clear that any bailout will come if - and only if - Air India is able to shed its flab, become competitive and completely transform itself. Otherwise, it's curtains for the airline.
After meeting the PM, aviation minister Praful Patel said the government has formed a four-member committee of secretaries - headed by the cabinet secretary and comprising of the finance, aviation secretaries and principal secretary to the PM.
"AI's restructuring plan along with the request for equity infusion-cum-loan has to be submitted to them within a month. Unless a series of measures are taken to improve the airline, it will not be possible for the government to keep supporting in unconditionally. This is one last chance Air India has got," Patel said.
This "radical restructuring" could mean Air India transforming into a low fare airline on almost all domestic routes except a few niche metro sectors where full service airlines get some business. In this downturn, only LCCs (low-cost carriers) have seen good load factors and both Jet and Kingfisher are increasingly using their domestic fleet for their budget arms.
"Indian carriers will have to redefine their business models. If someone has a capacity that can't be supported by a full service model, what choice does he have?" Patel said. While AI's efficiency has touched a very low level, the aviation ministry has not been able to turn it around despite placing orders for new planes worth Rs 45,000 crore and merging Air India and Indian Airlines, the committee of secretaries will review airline's performance every month. More importantly, it will see if Air India is meeting the promises it made to get the bailout money.
"The management will be restructured within a month. Eminent people will be brought on the airline's board, including functional directors. Induction of new aircraft into the fleet will not be slowed down as Air India will phase out its old aircraft," Patel said.
The airline has lost about Rs 5,000 crore in 2008-09 and seen its working capital requirement increasing from Rs 2,369 crore in March this year to Rs 16,300 crore in May.
With an equity base of Rs 145 crore and accumulated losses of Rs 7,200 crore till May 2009, the airline is supposed to fund 111 aircraft purchase whose cost is now closer to Rs 50,000 crore.
Internationally, Citigroup reported five quarters of consecutive losses, totalling $28 billion from the fourth quarter of 2007 to the Q4 of 2008. In the first quarter of the current calendar year, it made a profit of $1.6 billion on trading gains. Emerging markets like Asia-Pacific have been the growth engine for the bank, even as its core US market is reeling from under the impact of the subprime crisis.
Citi has ploughed back profits into its Indian operations and grown its capital base to Rs 11,518 crore. With this profit, Citi's Indian operations rank at number seven among local banks in terms of net profit.
What makes Citi's profit exceptional is that the American bank has only 40 branches across the country. Some of Citi’s Indian rivals have more branches in metros like Mumbai alone.
The profit drivers for Citi have been treasury and corporate banking. For all the delinquency-related problems in personal loans and credit cards, Citi continues to have a profitable retail business. "Recognising the credit quality challenges we faced in our unsecured consumer loan portfolio, we were among the first in the industry to take corrective action and are pleased with our progress," said Citi South Asia CEO Mark T Robinson.
The bank’s branch banking business, Citi Gold — its offering for HNIs and mortgage business — has been profitable. Corporate banking revenue rose by 15% to Rs 3,029 crore, treasury 61% to Rs 3,293 crore while retail banking revenues rose 12% to Rs 4,005 crore. On a conglomerate basis, some of the NBFCs like Citigroup Global Market, Citicorp Finance, Citicorp Clearing Services and Citicorp Capital Markets have logged higher profits than last fiscal while Citi Financial, the group’s consumer finance arm, has reported a loss.
In the last fiscal, on a conglomerate basis, the net profit of the group was at Rs 2,596 crore. This year, however, the conglomerate profit would be lower. The group has not given the break-up in profit for any of the NBFCs.
In FY09, the bank's balance sheet grew 25% to Rs 105,264 crore. One of the profit drivers was the 46% rise in non-interest income to Rs 3,582 crore. Interest income grew 15% to Rs 6,840 crore. Advances of the bank grew by only 4% to Rs 39,920 crore while deposits grew 15% to Rs 51,677 crore.
The problem arose because the Mahindra Group is said to be considering a merger between Tech Mahindra and Mahindra Satyam.
When contacted, a Deloitte spokesperson declined to comment on the issue citing client confidentiality. A Tech Mahindra spokesperson also didn’t want to comment. Deloitte and KPMG had been appointed to restate the accounts of Satyam after the former chairman of Satyam, B Ramalinga Raju, admitted to falsifying the accounts of the Hyderabad-based software company.
Deloitte and KPMG had been mandated to go through past accounts of Satyam to trace the methodology used by the Satyam’s disgraced chairman and his team to execute the fraud, estimated to about Rs 7,000-Rs 8,000 crore. The mandate was to dig up accounts over a seven-year period as investigators expect the fraud to have been initiated over that period. Deloitte’s move raises concerns about a possible delay in submission of the restated accounts of Satyam. KPMG declined to comment on the issue. It had earlier been reported in ET that the restated accounts of Satyam could be ready in four months.
India, one of the leaders in coal and iron ore production, has seen significant growth in mining activity over the last few years. Moreover, on back of growing demand, even amidst global turmoil, India is surely moving ahead with its aggressive mining plans. There can be a deferral in capital investment, but India will continue to witness significant investment in the mining segment.
In 2008-09, the bulk of the value of mineral production, about 80.65 per cent, was confined to seven states, including offshore areas. Offshore areas continued to lead in terms of value and had a share of 17.72 per cent in the national output. Next in order was Orissa with a share of 14.80 per cent, followed by Chhattisgarh (11.36 per cent) and Jharkhand (8.22 per cent).
Coal India alone produced around 403 million tons (MT) in 2008-09. The company had planned to invest over Rs 18,000 crore to produce 520.5 MT of coal during the terminal year of the Eleventh Plan. One of the other most crucial and strategic raw materials for the country, iron ore has attracted major focus and attention. The country produced over 210 MT of iron ore in 2008-09. Considering the steel project expansion in the country, it has been estimated that production will continue to grow at a compounded annual growth rate of 2.1per cent.
There is tremendous activity in the non-ferrous metals segment as well. Major metal companies, including Nalco, Hindustan Zinc and Hindustan Copper, have massive expansion and exploration plans.
Getting mining leases are a pain point of the industry. But those who have got the mines are currently controlling the metal market, be it steel making or aluminum or copper. Steel makers with captive iron ore and coal resources have been able to make profit despite recession.
The Indian national steel policy, apart from steel production, also aims to remove the bottlenecks in the availability of inputs like iron and coal. It wants to enhance iron ore production from the current capacity of 172 MT to 290 MT in 2019-2020.
Well recognizing the importance of this sector, the country has already seen a tremendous growth in investment here. According to the Annual Report of RBI, deployment of gross bank credit to mining and quarrying (including coal) sector has already crossed Rs 10,616 crore as on March 2008 against Rs 2,800 crore as on March 2004.
However, the government must carefully evaluate export options and allot mining leases with great care. If national resources begin to go out of the country, it would affect our growth plans heavily.
More significant, the regulatory body would be responsible for domestic coal pricing, a sticky and politically sensitive issue particularly for a mass use energy item like coal.
"We’ve already begun the process and this will be institutionalised within the next three months," Union coal minister Sriprakash Jaiswal said at a press meet during his maiden visit to the city on Wednesday.
The minister also deflated specific questions on any attempt to hike coal prices saying that the issue is not under consideration by the government at the moment. "The target is not to raise prices but to raise production. It is not necessary to raise prices," he said, while insisting "priority will be given to power sector."
Incidentally, the creation of a Coal Regulatory Authority was part of the T L Shankar Committee report on coal sector reforms and development in the country. The draft report, which had recommended recasting the present structure of CIL, had also recommended the setting up of an Office of Coal Governance and Regulatory Authority, which would act as regulatory and development agency. The body would be a key role even as the stage is being set for entry of pure play mining companies with optimum scale of operation and access to technology that would be a big advantage.
At present, private entry into coal mining is allowed for captive use only in steel and cement sector. However, out of the 190 allottees who were offered captive coal blocks with total reserves of 40 billion tonnes, barely 13 have managed to start production, with over 80% remaining unstarted. Most projects are mired in land acquisition problems with the rest tripping over environment and forest clearance.
The minister met the state CM Buddhadeb Bhattacharjee on Wednesday to request him for assistance to get over land and environment problems for physical possession of some 2100 hectares that affect some 13 mining projects in West Bengal. Mr Jaiswal will have similar meetings with Jharkhand governor, alongwith environment minister Jairam Ramesh.
The coal minister also reiterated the government’s in-principle decision for disinvestement of upto 10% in Coal India Limited, with most of the shares likely to be alotted to emplyees and those whose land will be acquired. However, he said no timeframe has been fixed for it.
India’s largest oil explorer turned in results, which were below market expectations, hurt also by a drop in other income and a one-time provision of Rs 860 crore towards a legal dispute with the government over sharing of revenue. The ONGC stock gained 2.5% to Rs 1,051 on the BSE on Wednesday, while the benchmark Sensex rose by 0.7%.Net profit for the March quarter fell by 16% to Rs 2,207 crore on a 12% fall in net sales to Rs 13,834 crore.
ONGC’s production for the quarter, including the output from joint ventures, was 6.8% lower at 6.48 MT. Discounted fuel sales to petroleum retailing companies fell substantially to Rs 852 crore. However, for the full fiscal, the subsidy burden was 28% higher at Rs 28,225 crore. ONGC continued to be India’s top profit-making listed company in FY09, posting a consolidated net profit of Rs 20,117 crore. After adjusting for minority interest, it was Rs 19,752 crore, only marginally higher than last year.
The company’s consolidated performance for the year was aided by its wholly owned overseas arm ONGC Videsh. The subsidiary, which has 40 projects in 16 countries, benefited from higher crude oil prices in the first half of the year. OVL’s profit for FY09 grew 19% to Rs 2,853 crore on sales growth of 9% to Rs 18,503 crore. OVL’s production for the year, however, stagnated at 8.8 million tonne of oil equivalent.
Although the state-run oil marketing companies raised their dividends in FY09, ONGC has maintained its payout at last year’s level of Rs 32 per share. This will amount to an outgo of Rs 6,844 crore and including the dividend distribution tax, it will take away half of ONGC’s standalone annual profit.
At the current price of Rs 1,051, ONGC’s stock trades at 11.4 times its FY 09 earnings per share of Rs 92.4. The annual dividend yield works out to a little over 3%. The scrip gained substantially in May following expectations of an upward revision in natural gas prices and the possibility of divestment. ONGC’s weak results for the fourth quarter may not impact the stock price much as the company has managed to report better profit than last year despite higher subsidy and lower crude prices.
According to analysts and broking houses tracking India’s largest commercial vehicle maker, the consolidated loss for Tata Motors could be in the region of about Rs 300 crore for the financial year owing to weak sales by the UK unit and high interest costs from a Singapore subsidiary.
In the fiscal year 2000-01, Tata Motors had reported a standalone loss of Rs 500 crore due to weak sales of commercial vehicles — its mainstay. Tata Motors refused to comment for this story saying it doesn’t give guidance on the financial results. The company is scheduled to announce its consolidated results on June 26.
According to four brokerages that ET spoke to, the loss of Tata Motors’ UK units could be about Rs 900 crore, interest costs from TML Holdings, the Singapore holding company, totalled Rs 400 crore in the previous fiscal year, while losses from Tata Motors Financial Services could be about Rs 100 crore.
Sales of Jaguar and Land Rover, the luxury brands, hit a rut after tight liquidity post the Lehman crisis affected car sales in Europe and the US. After seeing a 16% decline in the calendar year 2008, sales of Jaguar & Land Rover were down 17% in the January-March period in key US and European markets, says a recent Merrill Lynch report. However, demand from other markets, such as Russia and China, improved slightly.
Tata Motors bought Jaguar & Land Rover for $2.3 billion (about Rs 11,200 crore at the current exchange rates) in June 2008, surprising the global auto industry. The Tata Group already has a presence in the UK through tea firm Tetley and in steel after acquiring Corus. Shares of Tata Motors were up 4.2% at Rs 357 on BSE on Wednesday.
Wednesday, June 24, 2009
The PLR is the reference rate to which banks link their floating rate loans. It reflects the prevailing cost of funds and interest on floating rate loan is expressed as a percentage spread above or below the PLR.
SBI’s rate cut will bring down the borrowing cost on 62% of loans extended by it. The cut will not apply to borrowing under special schemes. These include home loans, education loans, auto loans, produce market loans, and loans against warehouse receipts and loans to small and medium enterprises. Under certain special schemes, loans are available at discounted fixed rate for the initial year.
According to chief financial officer SS Ranjan, the bank has brought down its PLR to 11.75% from its peak level of 13.75% last year to improve credit offtake and stimulate economic growth. “There has been a general demand for lower interest rates and today we have been able to do it because we have been able to bring about certain efficiencies in operations which we would like to pass on to customers,” he said.
“About 68% of our loans are linked to prime lending rate. But various sectors that have already been granted concessions will not be affected because they are already below the PLR-determined rate. As a result, around 62% of our loans will be repriced” said Mr Ranjan.
The rate cut comes within weeks of finance minister, Pranab Mukherjee asking government-owned banks to reduce lending rates. SBI’s prime lending rate is now lower than that of several public sector banks, like Bank of Baroda, Bank of India and Canara Bank, which have retained their prime lending rate at 12%. But SBI’s PLR is higher than that of PNB, which has pegged its benchmark rate at 11%, the lowest in the industry. However, the Delhi-based bank has directed branches not to lend below PLR.
According to Mr Ranjan, Reserve Bank of India’s decision to review the way the PLR functions will not impact SBI’s return on loans. “The only change is that spread may turn positive over PLR”.
Urban development minister S Jaipal Reddy raised the demand in a pre-budget meeting with finance minister Pranab Mukherjee on Tuesday arguing that I-T concessions would boost the recession-hit realty sector besides giving relief to households affected by the economic slowdown.
The ministry has also recommended that the income tax exemption limit om rental income be raised to 50% from the existing 30%.
The ministry, which is pushing a proposal to hike income-tax exemption available for interest payment on home loans to Rs 3 lakh a year, is also batting for raising the limit for exemption on repayment of principal amount to Rs 3 lakh.
Currently, taxpayers taking housing loans are eligible for I-T exemption on interest payment of up to Rs 1.5 lakh every year. Along with this, the repayment of principal amount up to Rs 1 lakh is part of investments eligible for benefit under Section 80(C) of the Income Tax Act.
The existing tax exemption limit is considered inadequate at a time when a two-bedroom apartment in the metro cities costs anything between Rs 25 lakh and Rs 35 lakh. In a move to push demand in the housing sector, the UD minister also favoured cheaper loans for buying houses.
The ministry also demanded lowering of interest rate on small housing loans as part of the government's effort to stimulate the economy. "We should make arrangements for giving loans at 6.5% interest for houses in the below Rs 5 lakh category," Reddy said after his meeting with finance minister.
Reddy also argued for extending housing loans at the rate of 7.5% for houses costing above Rs 5 lakh and up to Rs 30 lakh. Presently, 7.5% rate is available for apartments priced up to Rs 20 lakh. The housing sector is on top of the UPA's agenda considering the huge demand-supply gap in cities and the sector's potential in generating employment.
The ministry also demanded that the real estate sector should be treated on a par with industry for all purposes, particularly lending norms like interest rate and risk perception for project construction finance.
The housing sector in the country has been hit hard by falling demand following a rise in interest rates. Besides lowering of home loan interest rates, the realty sector has been continuously pitching for greater tax benefit to stimulate the decline in demand.
"The Central Board of Trustees (CBT) is expected to decide the interest rate for this fiscal on provident fund deposits during the meeting scheduled on July 4," an EPFO source said.
Once the CBT, which is headed by the Labour Minister, recommends the interest rate on provident fund deposits, it is sent to the Finance Ministry for final approval.
"The CBT is in a position to recommend 8.5 per cent interest rate for 2009-10, the same that depositors received in the previous fiscal," he said, adding that the final decision will be taken by the trustees.
At present, there are about 4.49 crore provident fund subscribers and they have been receiving 8.5 per cent interest on their deposits since 2005-06.
Even after paying an interest of 8.5 per cent, the source said, "the EPFO would have a surplus of Rs 6.4 crore during 2009-10." The organisation is expected to earn an income of Rs 12,994 crore in 2009-10.
With regard to tax exemptions during NPS withdrawal, finance minister Pranab Mukherjee is likely to make a statement on NPS enjoying equitable tax treatment with other long-term savings instruments in the new Direct Tax Code expected to be unveiled next year, said a government official who asked not to be named.
NPS is an ultra-low-cost funded pension system in which a common recordkeeping agency maintains individual pension funds of subscribers, who can choose from alternative pension fund managers and asset classes for investments.
It has been in operation for a year for civil servants recruited after January 1, 2004, and has now been opened up to all Indians. Contributions to NPS are expected to be clubbed in the cumulative savings up to Rs 1 lakh exempted from tax under Section 80 C of the Income Tax Act. Right now, 80C exemption is offered to various investments such as public provident fund (PPF) and National Savings Certificate (NSC).
Currently, the tax benefit is available on contributions under Section 80CCD only to salaried taxpayers and that too is conditional to the deposit not exceeding 10% of the salary.
During the period of accumulation, NPS is exempt from tax, just as other long-term saving schemes. However, as of now, withdrawals from NPS are taxable, unlike in the case of say PPF, creating a disincentive for savers. This anomaly can be fixed either by exempting NPS withdrawals also from tax or by bringing withdrawals from other long-term saving schemes also under taxation.
Experts have recommended that all long-term savings be brought under the tax regime dubbed E-E-T, exempt during contribution, exempt during accumulation and taxed during withdrawal.
Pension fund regulator PFRDA has made a strong pitch to the government for giving tax benefits to NPS. It wants a level playing field for all long-term savings in the tax laws.
NPS, which was hitherto applicable to all central and state government employees since 2004, is now available to all citizens from May 1. The government is also expected to reintroduce the PFRDA Bill, which will give legislative teeth to the regulator.
The Bill, which could not be passed owing to opposition from the Left parties, lapsed with the dissolution of the 14th Lok Sabha.
"Tata Motors once again places on record its gratitude to the people of India for according such a warm welcome to the Tata Nano, as also to all its preferred financiers, dealers and partner companies for their stupendous effort in helping the company launch the Tata Nano," the company said in a statement.
The selection was made through a random computerised process after bookings closed April 25.
About two lakh bookings, which began April 9, were made across Tata Motors dealerships and State Bank of India (SBI) branches. This was, however, much lower than what was expected.
The selected applicants will be contacted individually, the statement said, adding that delivery will begin next month and continue till the last quarter of 2010.
India's third largest passenger car maker said 55,021 applicants out of the 106,703 not selected in the first phase had exercised the option to retain their booking.
They will be given preferential allotment in the second phase.
Additionally, they will be entitled to an interest of 8.5 percent on the booking amount if the car is delivered within two years (June 23, 2011), and 8.75 percent after that date. The booking amounts of the unsuccessful applicants shall be returned, the statement added.
The company will also be offering the unsuccessful applicants "an exciting offer on the Tata Indica range", the statement read.
Likely to be priced higher than the existing Rs 14-lakh model, the new Grand Vitara, called GV 2.4 in India, will be pitted against General Motors’ Captiva, Hyundai Tucson, Ford Endeavour, Mitsubishi Pajero and Outlander, as well as the yet-to-be launched Skoda Yeti and Toyota’s Fortuner.
While the company spokesman refused to comment on the launch, a person familiar with developments at Maruti said the new SUV will be launched next month.
Sales of the third-generation 5-seater Grand Vitara fell to 270 vehicles in FY09 against 795 units in the previous year. More than 25,000 SUVs priced over Rs 10 lakh are sold in India every year.
Besides a bigger engine, the new Grand Vitara will carry minor changes in body design and interiors.
Maruti was once a major player in the domestic SUV segment with its Gypsy catering to the entry-level off-roader marke.
The Future Group firm, which has chalked out ambitious expansion plans, also plans to open nine additional Central malls by December 2009, it said in an investor update.
The BSE-listed company's three segments put together generated sales worth Rs 619.27 crore last month, against Rs 540.66 crore in May 2008, up by 14.54 per cent.
India's largest listed retailer saw sales jump almost 30 per cent at Rs 6,719.29 crore from July-May 2009 in the three segments compared with the year-ago period.
Future Group founder and CEO Kishore Biyani said he plans to roll out 10 new malls, which will add 1.5 to 1.7 million sq ft to the company's existing retail space of 14 million sq ft.
Biyani will fuel the expansion using Rs 367.5 crore it raised last month through preferential allotment of shares and warrants.
Pantaloon Retail would inject close to Rs 250 crore within the next year-and-half for setting up 10 Central malls in the country, he said.
"We plan to expand Central in some of the country's other consumption centres such as Ahmedabad, Bangalore, Surat, Mumbai, Vizag, Jaipur, Thane, Raipur and Nashik," he said.
The retail major has also sought to raise additional long term funds of up to Rs 1,000 crore in one or more tranches through issuance of securities to various investors.
Besides, the supermarket operator will also roll out six Big Bazaar and eight Food Bazaar stores stores by July-end.
Biyani also plans to set up six eZone and two HomeTown stores by next month-end despite negative sales in its home retailing segment.
Home Solutions Retail (India), an unlisted entity and a wholly-owned subsidiary of Pantaloon Retail India (PRIL) runs the home retailing (and home electronics) stores - Home Town, Furniture Bazaar, eZone, Electronics Bazaar, and Collection i.
The company's same store growth in home retailing fell 28.27 per cent in May at Rs 40 crore, continuing a six-month losing streak that began in November 2008.
The retailer, which runs over 900 stores, including 50 in Mumbai, has already broken even at the store level in around one-third of the 80 cities it operates in. The executive said stores in Chennai, Bangalore, Hyderabad, Orissa and half the number in Delhi have broken even. Stores in the other metro, Kolkata, however, may fail to break even.
A Reliance Retail spokesperson declined to give details on the company’s finances, saying, “As a policy, we do not comment on our financials and do not make any forward looking statements.”
The company’s value formats, comprising convenience store Reliance Fresh, supermarket Reliance Super and hypermarket Reliance Mart, together have 750 stores. The speciality formats, including apparel, jewellery, wellness, footwear, consumer electronics and eyewear, account for the rest.
The downturn hit all modern trade players and their sales fell due to weak consumer sentiment and unavailability of funds precipitated by global credit crunch. Indian retailers, new to the game, were also saddled with high operational costs, mainly that of rental and manpower.
That is when Reliance Retail made a strategic shift: It renewed focus on presenting itself as a deep discounter, started a war on cost and moderated the pace of expansion.
As the cost cutting drive had started, another top company official, while speaking to ET early this year said, “We are making double digit savings in both capital and operational expenditure, with our new way of doing things.”
The retailer is far more cautious now, choosing the right location at far lower rentals, compared to the overheated days of 2007. Similarly, the company shut several unviable stores, relocated many and shrunk the size of many others to suit business requirements. The exact number of stores shut couldn’t be ascertained, but people close to the development said over a hundred stores must have been impacted by the whole exercise.
On the same line, these people say at least 3,000 staff were retrenched at the retail chain, but company denied this, saying only an insignificant number of staff have lost jobs. The company currently employs around 23,000.
A significant move was also made to underline its position as a value retailer. The company went ahead to present itself as the right destination for bargain hunters through different communication strategies.
It has even piloted a ‘Supervalue’ format in some smaller cities and towns, including Jaipur, Mysore and Dhanbad, where it has no-frills stores that offer products, up to 10% cheaper than other Reliance stores.