Local insurers say they havent collected enough rent

ET reports

Higher FDI in insurance may have to wait

Local Insurance JV Partners Want To Wait For Some More Time To Get Better Valuation From Stake Sale

THE Left parties may find an unlikely ally in opposing the hike in FDI in insurance — Indian promoters of insurance joint ventures. They may well find themselves on the side of the Left parties, albeit for different reasons. Even as the government is trying hard to push ahead with the hike in FDI in insurance, some of the Indian promoters in these joint ventures are not exactly lapping it up.

Once the FDI hike in insurance is notified, Indian promoters will have to reduce their stake to 51%. Some of the contracts in joint ventures are open where the method of transiting from 26% to 49% is not clearly laid out. Come the hike in FDI, the Indian promoters may not want to divest the 23% in favour of the existing foreign promoter, unless there is an explicit undertaking to this effect in the original agreement. It is also known that some of the foreign promoters have paid a premium for Indian brands.

Big Indian promoters have in the past have approached the government in order to buy time. “They would rather wait till valuation climb further and then get a better return on their equity,” a source in the government said. With a growth of around 150% year-on-year — the valuations of most insurers have silently grown by between 20% and 60%, and are poised to more than double by 2010, according to a recent study by Merrill Lynch.

Businessmen are not actually 'unlikely allies' to left parties when it comes to protectionism, as other entries under this label would show.

Time again to quote Raghuram Rajan, who said in an interview to IE sometime back: "We have allowed foreign entry. But we still keep making conditions. Foreign entry only if you have tie-ups with local entrepreneur. Sometime it is beneficial since local skills are needed. Sometime, it just holds up the foreign investor and forces him to share 26-30 per cent with the local incumbent. Three years down the line, with the local incumbent providing nothing, he buys out the local incumbent. The guy has got rent, and walks off with a pile of money. We have to figure out where it makes sense."

Mandatory grading of IPOs

Some days back there were reports on SEBI deferring decision on mandatory grading of IPOs. BL report here

The Board of the Securities and Exchange Board of India (SEBI) on Saturday deferred a decision on mandatory grading of initial public offers (IPOs) pending presentation of a credit rating agency's experiences on this issue.

"Factoring in whatever inputs of the rating agency that are relevant for decision making, the SEBI Board will make a final call on grading of IPOs and whether there ought to be any time limit as recommended by the Primary Market Advisory Committee (PMAC)," Mr M. Damodaran, SEBI Chairman, told newspersons here.

He said that "a credit rating agency" had sought an opportunity to make presentation before the Board on the experiences gained by it in IPO grading in the recent months.

ET today has a report on industry reactions, in which i found one sensible observation that too from an unnamed head of investment banking at a US-based firm (in bold in the extract below).

IPO grading is fine, but with conditions, say marketmen: SEBI’S decision to defer mandatory grading for companies going public has evoked a mixed response. While a section of market watchers feels that the process is biased against the smaller firms, another section feels that making the grading mandatory would lead to fine tuning of the grading parameters so as to provide a level-playing field.
“As the grading process is not compulsory, it is only the small companies that are forced by the exchanges or Sebi to go for IPO grading. However, I think that it (grading) should be made mandatory so that all companies go for it. I think the process has led to better companies hitting the primary market and even the investment bankers are selective in their approach. Making it mandatory would result in more transparency and the criteria of grading. This will make everybody more comfortable with the process,” says an investment banker who does not wish to be named.
Ajay Dwivedi, CEO, Crisil Research and Information Services, does not feel that the grading parameters discriminate against the smaller companies. “It was a pilot project and we have learnt a lot from this. The current exercise of fundamental assessment of the company is correct and it should not be tailored in a way that weak companies get high grade, in spite of what the critics say,” Mr Dwivedi says.
The biggest argument against IPO grading is since it does not comment on the pricing aspect, prospective buyers are unable to decide if it makes sense to subscribe to the issue at that price. “Grading is done at the draft prospectus stage and as such there is no connection with the price of the issue,” said the head of investment banking at a US-based firm.
“Moreover, rating of equities does not make sense. It is a risky asset. Somebody, who does not understand, should invest through MF rather than relying on grading. The grading without price comparison is irrelevant and makes no sense. Mandatory grading is out of question as it would not serve any purpose,” he said.

To grade equity is to fool investors into believing that equity is somewhat like bond.

More than chipping in

On the recent fab policy, a BL edit rightly asks

The policy does not address a basic question: Why it is necessary to subsidise their local manufacture merely because there is a growing appetite for these consumer goods? A country's choice of what it would produce and what it would source from outside depends on the evaluation of comparative advantages in making versus buying. If chip fabrication does not make economic sense, then providing fiscal sops to tilt the scales would set a dangerous precedent where drawing a line on denial of such benefits elsewhere can become virtually impossible.

Looked at from another perspective, India does not also produce all the gold and diamond (indeed practically nothing) that it needs as raw material for the gem and jewellery industry. But that has not prevented the country from virtually cornering the global market for cut and polished precious stones or making serious inroads into jewellery making. Indeed no economy can boast of such an insular existence that it sources everything that it needs from within its shores. No doubt we live in a world where nations compete with one another to attract investments. The chip fabrication industry is merely a manifestation of this trend. But if India must enter this race, then the Government has to make out a valid case for extending these fiscal benefits.

When a government runs a business

Sunil Jain writes in BS

When BSNL launched its cellular services in October 2002, few thought it would become one of the biggest mobile phone service companies in the country, matching market leader Bharti every step of the way when it comes to acquisition of new subscribers. Being a PSU, however, BSNL has to follow time-consuming and archaic tender procedures—while a Bharti or a Hutch can order equipment within a couple of months after private discussions with vendors, BSNL has to go through an elaborate public tender.

So, almost two years ago, the PSU began inviting vendors to discuss/plan for a next generation (3G) network. An eminent panel of experts was even constituted to vet its Request for Proposal, and this was then reviewed by BSNL’s board, which has nominees of the government on it. A year ago, the $5 bn tender was floated, and a committee with independent members was set up to evaluate the bids. This in turn set up five sub-committees to examine different sections of the tender (to reduce the chance of bias) … the committee’s recommendation then went back to the board for approval.

Last year, in October, the board rejected two bidders on technical grounds, and opened the bids of the others. A rejected bidder went to court, and the case has been there for more than four months, after 12-13 adjournments. The way things are it could well go on for another year or more.

Before we come to who’s to blame and possible solutions, what will this cost BSNL? BSNL is woefully short of capacity and its ability to attract new customers is now determined by whether it can give small “expansion orders” to vendors on the basis of existing contracts—while this helps somewhat, it is nowhere near enough. In 2005, BSNL was able to get around 30 per cent of all new GSM cellular subscribers in the country and 22-23 per cent for all mobiles including the CDMA ones. This has fallen steadily and, last month, BSNL got just 16 per cent of the new GSM subscribers—it was 12 per cent for all mobiles.

If you assume BSNL’s new network is delayed by a year and it is able to stumble along with “expansion orders”, this means the PSU will “lose” at least 6 million potential subscribers to competitors like Bharti and Reliance, assuming conservatively that the industry adds just 5 million subscribers each month. Based on the valuations Vodafone paid Hutch, this means BSNL stands to lose over $3 bn in terms of capital values. At an Average Revenue Per User of Rs 300 or so per month, a year’s delay also means BSNL loses a whopping Rs 2,190 crore of top line revenue.

On the face of it, there is little the government could have done to prevent this. But an active government would be trying to persuade the courts to hear the matter at the earliest, and that the tender be awarded subject to the court case—both these things happened in the case of the Delhi and Mumbai airports since the government had made them a prestige issue. And there is the larger issue of whether PSUs should be going through such elaborate tendering procedures when no private company follows the same procedures. In today’s ultra-competitive world, it does seem an invitation to disaster.

Kerala government to take on Reliance

Indian Express reports

The Left government in Kerala has decided to do a Reliance to Reliance and back it up with a major subsidy splurge, to meet the retail behemoth’s “threat” to the state. “Reliance is a big challenge. It’s large enough to control the market and decide prices. We will take it head on,” Agriculture minister Mullakkara Ratnakaran told The Indian Express......

So the Left government will now mimic Reliance itself, and have its own Kerala Horticulture Development Corporation (Horticorp) set up procurement centres all over the state, cutting off middlemen the way Reliance does. And to take on the Reliance Retail outlets, vends across the state. This is while very few of the over 900 set up by the then Left regime in the 1990s have survived. Besides, to cope with the expected brand pull of Reliance’s sophisticated supermarkets, the government will mimic those too. “We have decided to set up our own state-of-the-art, world-class supermarkets in Thiruvananthapuram, Kochi and Kozhikode,” says Ratnakaran.

For good measure, the comrades will also go for large-scale contract farming — something Reliance officials say they are not considering yet. The government model distinctly mirrors what yet another Left bete noire, Pepsi, had been successfully doing in Punjab and elsewhere — Pepsi had to shelve tentative plans for contract-farming ginger in Kerala in the 1990s, during the Left government of E K Nayanar.

In fact, it could tackle Reliance better if it gets support from people who know retailing business. It should let THEM take on Reliance - and can expect even better results. And, for the government itself, there are better and more important things to do.

Sugar industry wants to Indian tax payers to subsidize foriegn consumers

FE reports

The crisis-ridden Indian sugar industry has appealed to the Centre to provide a slew of sops for enabling it to export 7.5 lakh tonne especially when the global prices are at the rockbottom. The industry has called for reimbursement of expenditure on internal transport (13 paise per quintal per kilometre), ocean freight at Rs 350 per tonne and marketing & handling expenditure at Rs 500 per tonne.

The industry has approached the government as the sugar price has dipped to Rs 1,220 per quintal ex-mill and it stood at $319 (FOB) per tonne in the international market.

Prakash Naik Navre, managing director of Federation of Cooperative Sugar Mills in Maharashtra told FE, “After the announcement of lifting of ban imposed on sugar export, sugar mills have started exploring available export opportunities in the market. However, record sugar production world-wide in general and particularly in India have affected the prices in the global market. Sugar mills have received sugar prices (ex-factory) ranging from Rs 1275-Rs 1330 per quintal during January-February 2007. As the season progresses, prices are sliding on the domestic and export front. Prevailing sugar prices in the market are below the cost of production which is Rs 1,434 per quintal and also lower than the levy price of Rs 1,334 per quintal. Thus the above mentioned sops are quite essential.”

More measures sought to curb arecanut import

BL reports

The notification issued by the Director General of Foreign Trade (DGFT) on Wednesday allowing only one port in the country - New Mangalore Port - to import arecanut will help the sector monitoring imports of the commodity and its movement better.

Though the measure to curb the import of the commodity has been well received in the arecanut industry, there is a need to speed up the appointment of a nodal agency to check the quality of the imported commodity and to fix a tariff rate (or floor rate) for imported arecanut. These two measures will help control the import to a great extent and boost domestic market, according officials in the sector.

Inflation

Everyone seems to be concerned, rightly, about inflation. BL has a table giving prices of consumer goods over the last three years - where price changes look less threatening.



Reason. BL reports:

A combination of several factors has helped keep consumer goods prices under check over the past three years.

As Mr R. Subramaniam, Managing Director of discount retail chain Subhiksha explains, most categories have been inflation resistant due to stiff competition be it in shampoos or tea. "Combined with excise and income tax sops offered for manufacture in certain locations such as Uttaranchal, the North-East and Himachal, there has been significant cost savings for manufacturers also — so it is not as though their bottomlines have suffered. Also in specific categories emergence of new competition, for example in biscuits a reinvigorated Parle and a rampaging ITC have also been an issue."

Food prices are still a major concern, and everyday you see reports of government trying to do something about it by banning exports, lowering important prices, forcing people to sell them at certain prices, trying to ban future trading etc... BL has another piece - an interview with Mr Ramkishen S. Rajan, Associate Professor, School of Public Policy at the George Mason University, US - suggesting that targeted subsidies could be better solution here - but distribution infrastructure and fiscal deficit might come in the way.

On how inflation is supply-driven.

Inflation in India is also supply-driven in the sense of rising food prices. However, conventional monetary policy instruments are best used for demand-side inflation. Developing countries tend to use direct measures such as price controls, prohibiting exports of foodstuffs or reducing import tariffs on such items.

On the effectiveness of these measures.None of these are advisable policy options as they have distorting effects on the macro economy.

What are the options, therefore?

Directed and targeted subsidies to the least well-off would be preferable, though admittedly in the Indian context it is unclear that such a policy option will work effectively both because of the inefficiencies in delivery as well as the large consolidated fiscal deficit (which in turn highlights the need to take action on this front). Over the long term, focus must also be on systemic reforms to agriculture so as to overcome inefficiencies and reduce vulnerability to monsoon conditions.

More

Cement exports to be banned?

BS reports

The market value of cement shares fell by 3 to 5 per cent today on fears that the government might ban exports of the building material in the next week’s Budget, analysts said.

Cement companies exported 6.88 million tonne in the first nine months of 2006-07 compared with 9.19 million tonne in the previous financial year.

Subsidies for semi-conductors

BS reports

In a move that is perceived as a partial victory for the high-tech manufacturing sector in India and expected to attract investments of over $10 billion, besides generating employment, the central government has announced a host of incentives in its much-awaited semiconductor policy, to buoy the semiconductor ecosystem.

The government will bear 20 per cent of the capital expenditure in the first 10 years if a unit is located inside Special Economic Zones (SEZs) and 25 per cent in case of other units. The countervailing duty (CVD) on capital goods would also be exempted in case of units outside SEZs.

For semiconductor manufacturing (wafer fabs) plants, the threshold Net Present Value (NPV) of investments would be Rs 2,500 crore and the NPV of investments for manufacturing other products would be Rs 1,000 crore.

Assuming the projects have a 1:1 debt to equity ratio, the government is likely to restrict its participation to around 26 per cent of the equity.

The remaining “will be in the form of interest-free loans, tax subsidies, and concessions,” according to Union Minister for IT and Communications Dayanidhi Maran, who announced the semiconductor policy here today.

“It is up to state governments to provide additional incentives,” he added.

Export ban on chana goes; betel nut imports curbed

BL reports

The Centre has lifted the ban on export of `dollar gram' or kabuli chana, following reports of a crash in market prices.

The Directorate General of Foreign Trade (DGFT), in a notification issued on Tuesday, has said the general ban on pulses export, effective since June 27 last, shall henceforth "not apply to export of dollar gram (Chana) executed under the specific permission granted by DGFT." .......

Meanwhile, in a separate notification dated the same day, the DGFT has also announced canalisation of betel nut imports. Imports of betel nuts in whole, split, ground and other forms would from now on be allowed only through Mangalore port.

Ban on mineral exports sought

BL reports

In a communication to the Ministry of Commerce and Industry, Finance and Planning Commission, the Chamber has asked for an immediate ban on mineral exports to help domestic industry make finished products at competitive rates and for saving mineral wealth of the country.

As per the existing mineral policy, Government gets royalties between Rs 10 and Rs 27 per tonne of iron ore extracted depending upon grades. During 2005-06, the contribution from mining companies to the national exchequer was around Rs 300 crore whereas the Government earned around Rs 15,000 crore from the steel sector for the same period.

This included excise duty, sales tax/VAT and the applicable royalty on iron ore. The differential speaks of the fact that few mining companies held by the private sector are accumulating personal wealth by means of profiteering without any benefit to the Government and to the people, the chamber argues.

Sports commentary on FM soon

FE reports

Private FM radio stations may soon be allowed to air sports commentary, although the ban on news broadcasts by non-government FM channels would take a while to be lifted, information & broadcasting minister Priya Ranjan Dasmunsi said at the Express Group’s Idea Exchange programme on Wednesday.

“I will soon go to Parliament with a proposal to allow sports commentary in the private FM radio sector as it is not news,” Dasmunsi said. The Centre is likely to qualify sports commentary as entertainment to make this possible.

How generous of our government!

I think we need not go as far as China to laugh at or worry about restrictions on information flow, when we have so much here.

Atleast, this is giving a good excuse to quote Bhagwati. He writes in New York Times

China has an authoritarian regime, it cannot fully profit from the information revolution, thus inhibiting the technology that is at the heart of growth today. The PC (personal computer) is incompatible with the C.P. (Communist Party). So India, with its robust and chaotic democracy — what V. S. Naipaul has called a “million mutinies” — has moved dramatically ahead of China in computer technology. Hutton points out that from 1981 to 1995 China had 537 scientists and engineers doing research and development per one million people while India had only 151, and that China had three times as many personal computers as India and a 4-to-1 lead in Internet usage. Yet by 2001, India was producing one-fourth more software, and exporting most of it. “So despite massive investment,” Hutton writes, China “trailed far behind India.” He points out, too, that China damages itself by seeking to control and stifle what its citizens can learn and disseminate. “Yahoo, Microsoft and Google are part of the cultural yeast of globalization,” he says, “yet each has been at the receiving end of China’s Internet firewall of censorship.”

120 Orissa state outlets to sell onions

BS reports

Worried over the sudden rise in prices of the onion in the open market in Berhampur, the Ganjam district administration has forced traders to sell this commodity through the government retail outlets in the city.

The selling of onion at the rate of Rs 14 per kilo started in 120 government retail outlets in the city from Sunday.

"We have directed all 133 government retailers to sell onion at the rate of Rs 14 for the time being", said the district civil supply officer Saroj Kumar Biswal.

The decision to sell onion at the government retail outlets was taken at a high level meeting after chief minister Naveen Patnaik directed the district administrations to take steps to check the souring price of onion.

Small businesses protest Wal-Mart's India entry

BS reports

Wal-Mart’s high-powered delegation’s visit to India sparked a stormy protest by a state-wide federation of small businesses. They were protesting against the entry of the retail giant into the country.

The Federation of Associations of Maharashtra said the entry of the retail giant would have a negative impact on the local retailers and their livelihood.

Addressing a news conference, Mohan Gurnani, president of FAM said, “Wal-Mart is forcing its entry into the retail market through the backdoor. This company has driven out thousands of local businesses in the US and other countries”.

India is in the midst of a retail revolution that could replace many of the small kirana stores with a multi-billion dollar industry of air-conditioned supermarkets offering booming middle classes convenience buying.

When government runs a business

BL reports

The Centre has informally told the top corporates in the country's wheat business to refrain from purchasing the grain in major growing regions during the upcoming procurement season, according to sources in the wheat trade.

Large-scale purchases by the private sector last season at prices higher than the minimum support price were widely believed to have lifted the wheat market and reduced the Government's procurement through Food Corporation of India (FCI) to less than 10 million tonnes against the usual 14-16 mt.

New Delhi does not want the fiasco repeated this time, as the political price could be too onerous.

Marine exporters lobby hard against US anti-dumping

BS reports

The country’s exporters to the US have decided to strongly put up their case before the US Commerce Department in its second anti-dumping review of shrimp exports for the February 2006-January 2007 period.

In a meeting in Vizag recently, 75 exporters have resolved to apply for the review and engage New Delhi-based law firm Lakshmi Kumaran & Sreedharan for presenting their case before the US authority.

The US department on February 1 initiated the process of the second administrative review of shrimp exporters to the US and the last date for filing application for the voluntary review is February 28. The department will shortlist only a few of the 75 exporters for the review. The US Federal Register has also already published the schedule of the review.

Some actually believe that criticizing US is same as making a case against globalisation / free markets. But politicians, bureaucrats and businessmen are same everywhere - and are driven by same motivation to make markets less free. The one above is just one of the many examples. At the same time, we shouldn't forget that India lags behind US. India is ranked 104 (among 157 countries) in WSJ/Heritage Foundation's latest economic freedom index, scoring 55.6 points indicating that the country is mostly unfree (against the topper Hong Kong's 89.3). More. In ease of doing business, published earlier by World Bank, India is ranked 134 among 175 economies.

If US is one, 'dumping' is another. The word has a strong connotation. No one complains when a business offers something that we want at a lower price. In fact, we ask for it; rush to those who offer them at a discount. Yet, when a country does that, and when businessmen who can't compete complain about dumping, we are only to ready to buy their arguments - and deny ourselves the opportunity to buy something at a lower cost.

Sugar most controlled sector: Pawar

BS reports

Pawar said sugar was the most controlled sector. There were curbs on the sale of sugar in domestic as well as export markets. Besides, there were levy obligations and restrictions on setting up new sugar factories in the 15 km radius of old mills. Our sugar policies needed to change in tune with the changing world economy.

One of the members of the consultative committee suggested that the government should have a long-term sugar policy instead of taking short-term and ad hoc policy decisions. He also advised against banning forward trading in sugar though the flaws in this mode of marketing needed to be removed.

Responding to these remarks, the minister indicated that he could convene a meeting of the Members of Parliament to remove their misgivings concerning futures trading.

Yes much misgivings exist. In another piece Ajaj Shah writes

The political class is in a tizzy about commodity futures trading. Much of this fear is an archaic mistrust of markets, and the losses that incumbents suffer when competition and transparency come about. These fears do not hold up to careful scrutiny. The sensible strategy is to address the genuine difficulties of market design, regulation and supervision, so that futures trading is able to play its full role in a mature market economy. This requires breaking with policy decisions made in the 1950s.

More on controls in sugar sector from Businessline. Sharad Joshi writes

Even as there is call for the government to exit businesses, it remains interested in many, often for reasons political. The most regulated sector in agriculture is `sugar'. From licensing of mills to the specifications of gunny bags to be used for packaging, every thing is dictated by the Sugarcane Control Order, 1966. The government's 1998 decision to de-licence the sugar industry is pending before the Supreme Court. A number of matters relating to levy sugar, the Statutory Minimum Price (SMP) and the State Advised Price (SAP) are pending before various courts. Now, sugar mills have also been co-opted for co-generation as also ethanol production. And, under the new United Nations' norms for co-generation, the industry is also to take up Clean Development Mechanism (CDM) projects.

In this context, every aspect of the sugar policy needs to be reviewed.

RBI: Law on foreign funds may hit banks

BS reports

The Reserve Bank of India has opposed the government’s move to bring in a law to introduce a new reporting system for inward flow of foreign contributions.

The RBI has contended that the inclusion of all foreign inward remittances in the proposed new reporting system will substantially expand the scope of transactions monitored and may place a heavy reporting burden on the banks.

The Union Cabinet had cleared the Foreign Contribution Regulation Bill last year. The Bill proposes to mandate banks to report all foreign inward personal remittances to the Financial Intelligence Unit-India.

Inclusion of personal remittances in the category of foreign contribution transactions for reporting may discourage non-resident Indians and the expatriate work force to send money home through banking channels.

Further, it may make them send money through other channels like hawala and hundi, the RBI has added.

In view of the present scenario of liberalised current account convertibility, this kind of change would mean that a large number of transactions, which have no relevance, will be reported, the RBI said.

Protest against `e-ticketing'

MADURAI: The Southern Railway Mazdoor Union (SRMU) held a demonstration against the concept of `e-ticketing' and `I-ticketing' here on Monday.

Led by the SRMU divisional secretary, R. Kesavan, the agitators, including enquiry-cum-reservation clerks, raised slogans against the move by senior railway officials to introduce temporary counters at the reservation complex to popularise `e-ticketing.'

In his address, Mr. Kesavan said that `e-ticketing' would enable affluent passengers to book tickets with the help of credit/debit cards through Internet. The facility would be available between 4 a.m. and 11 p.m. whereas the counters functioned between 8 a.m. and 8 p.m. "When the counters open at 8 a.m., all tickets will be blocked. The common passenger will be affected."

The assistant divisional secretary, J.M. Rafiq, also spoke.

here

the forces against the march of technology are many but this is one of the worst examples i have seen!

Drug companies fleeced patients of Rs 738 cr: NPPA

FE reports

Nearly 120 pharmaceuticals companies, including some of the largest operating in India, have “overcharged” patients to the extent of Rs 738 crore between 2003 and 2006, according to the National Pharmaceutical Pricing Authority (NPPA). But the companies -- including Ranbaxy Laboratories, Dr Reddy’s, Cipla, Glaxo, US Vitamins, and Johnson & Johnson -- have challenged the regulator in as many as 69 cases involving Rs 688 crore. The total number of cases is 395.

The amount of money involved in the remaining 326 cases stands at Rs 50 crore for which the process of recovery is on and NPPA has, so far, recovered Rs 19 crore. Drug companies, when contacted, said they would refrain from making comments as the matter is sub-judice.

Between January 2003 and December 31, 2006, NPPA sent notices to over 120 companies. Some of the drugs the companies are alleged to have overcharged on are: ciprofloxacin, norfloaxacin and salbutamol. Overcharging means selling at a price over and above the one set by the NPPA. The regulator sets drug prices based on the cost of production. For indigenously manufactured formulations, the maximum allowable post-manufacturing expenses (MAPE) are 100% of the cost of production. For imported formulations, it is up to 50% of landed cost.

This is filed under Ministers of Business Administration, but I don't know if it should be under SCFC.

Coffee growers' financial aid likely before March

BS reports

The agriculture and finance ministries are likely to decide on the financial relief package being sought by domestic coffee growers before March, coffee traders said.

The decision will come before March, as banks would like to clean up their balance sheets before the financial year-end, they said.

According to estimates given by them, around 1.4 lakh growers, who had taken loans under the ‘special coffee term loan’ are likely to come under the purview of this package. Growers who took loan on July 1, 2006, would also be covered under the scheme, officials said.

Coffee growers had sought a financial package for waiver of interest on overdue loans as on July 1, 2006, and also rescheduling of the principal amount.

The package was sought in early 2000 since coffee growers could not fulfil their loan obligations due to higher incidence of white stem borer disease, which resulted in drop in productivity, severe shortage of work force, and rise in cost of production.

Rubber replantation subsidy may be hiked to Rs 24,500/ha

BS reports

The Central subsidy for replanting rubber is likely to be enhanced to Rs 24,500 a hectare in the 11th Plan period against Rs 20,000 in the previous Plan.

The finance committee of the government is yet to approve the hike in subsidy and an announcement to this effect is expected soon. The subsidy, when enhanced, would work out to 25 per cent of the per hectare development cost.

Earlier, the Rubber Board had proposed a rise in the subsidy to Rs 30,000 a hectare, but the government had asked to reduce it to the lowest because of a spurt in prices in the last couple of years.

The board had also proposed to enhance the subsidy for new plants to Rs 24,500 a hectare. But, it is not likely to happen and the subsidy for new plants is set to remain at Rs 12,000 a hectare.

The government considers that the recent spurt in prices are an encouraging factor for growers and sees no justification in a steep increase in the subsidy.

Semiconductor companies want more subsidies

BS reports

Last month, the Union Cabinet gave in-principle approval to the policy, which included a combined 25 per cent subsidy and tax incentives on the capital expenditure in the first 10 years of a fabrication plant.

However, the subsidy component is now being examined by a Group of Ministers owing to the huge financial implications involved. The Centre has announced that the policy will be out before the budget.

“We are seeking one-time investment to support semiconductor manufacturing. We are urging the government to set aside Rs 10,000 crore for this purpose. Three years down the line, this sector will pay back Rs 40,000 crore through revenue and employment opportunities,” Khare contends.

He pitches for semiconductor manufacturing strongly based on three factors — the demand for electronic products in the country, the ecosystem and international market dynamics.

Cartels, entry barriers & limited players spoil Indian banking: CCI | FE

FE reports:

According to government sources, in a presentation made suo motu to three deputy governors of the central bank recently, the CCI pointed out that during the last 10 years, the RBI had given licences to only two private banks - Yes Bank in May 2004 and Kotak Mahindra Bank in February 2003. During the same period, however, other sub-sectors like insurance and mutual funds had seen 24 and 14 new players, respectively.........

Strict licensing norms for branches and automated teller machines and restrictions on locations had created high entry barriers, the CCI pointed out. Further, it hinted at banks working as a cartel under the Indian Banks’ Association banner in setting interest rates for savings account deposits at 3.5%.

Walmart, Reliance and Kirana shops

Surjit S Bhalla writes in BS

Thankfully, technology changed and the world became flat. Which meant that politicians, across the world, had less and less influence on the activities of individuals in the service of themselves (aam aurat is too aam to be selfless like the Gods). So the economies started to grow, and this further diminished the size, and the effectiveness, of the Bombay Club.

But old habits die hard; most likely because people are loath to let go of “unearned” profits. It is in this context that some of the major initiatives of the UPA government have to be viewed. Let us start with the most blatant of them all—the recent missive by Ms Sonia Gandhi, the political leader of the government. She has been “reading in the media about Wal-Mart’s proposed entry into India … the desirability to first study the possible impact of ‘transnational supermarkets’ on the livelihood security of those engaged in small-scale retail operations … you may consider having the relevant issues properly examined before further decisions are taken” (emphasis in the original Sonia Gandhi letter to the PM). This gentle reminder to the PM has put protection of the poor aam fruit- and vegetable-selling aurat as the top concern of this government. Economic reforms (globalisation) have only helped the rich. Time for aam aurat to have her day. Such a nice government you say. Let us elect them again (provided they have electorally correct sleeping partners).

But wait a minute. Nowhere in this high command directive is mention made about big Indian businesses entering the retail trade of selling “fruits, vegetables and the like”. Last I heard Reliance had entered the fruit- and vegetable-selling market, and even by international standards, Reliance is Big Time Big. So how does the Reliance entry into the retail trade not hurt your kirana shopkeeper but Wal-Mart does? Sorry, one never gained an answer by asking logical questions from our “in the name of the poor” politicians.

Government unlikely to accept South Indian tea growers’ plea

FE reports

The Central government is unlikely to consider the demand of the South Indian tea growers seeking higher amount for tea replantation and rejuvenation on par with Darjeeling, jeopardising the proposed replanting exercise under the Special Purpose Tea Fund expected to take off from April.

Union minister of state for commerce Jairam Ramesh told FE he had received requests from some quarters in the South, including United Planters Association of South India (Upasi), for hiking the present subsidy limit and also raising the amount from Rs 2.73 lakh per hectare as proposed for Darjeeling. But the centre was unlikely to make changes in the present plan and things would go ahead as proposed, he said.

Sick fertiliser units to get Rs 1k crore | FE

FE reports

Board for Reconstruction of Public Sector Enterprises (BRPSE) has given its nod to revive closed fertiliser units of Fertiliser Corporation of India (FCI) and Hindustan Fertiliser Corporation (HFC).

The proposal will be forwarded to the Cabinet within a fortnight. A senior official at the Department of Fertilisers (DOF), however, said efforts would be made to bring back eight plants of the two companies through public sector participation if the present plan does not work. Expression of interest would also be invited from private sector players, he added.

Orissa to set up venture capital fund for IT firms

BS reports

Taking a leaf out of Karnataka, Orissa is exploring the possibility of setting up a Venture Capital Fund (VCF) for small and medium IT enterprises in the state.

This is in line with plans to set up a National Venture Capital Fund (NVCF) for IT SMEs, which is currently pending with the Planning Commission.

The Karnataka government has already set up a VCF with the Small Industries Development Bank of India (SIDBI) with a corpus of Rs 15 crore to promote the Software Technology Parks of India (STPI). Known as the country's silicon valley, Karnataka is the first state to accept the NVCF proposal and has become a role model for other states.

Currently, Orissa STPI has a catalogue of 100 registered IT/ITeS companies, of which only five per cent are in the big league and the remaining are IT SMEs. State STPI officials said they were aware of the NVCF formation proposal and are already making efforts to establish a state venture capital fund (SVCF).

With whose money? Why?

Curbs put on onion exports | BS

BS reports

The government has swung into action to curb onion exports and check the rise in prices in the domestic market by effecting an 8 per cent hike in its minimum export price (MEP).

The MEP has been increased by $25 per tonne to $330, with effect from February 12. Also, export canalising agencies have been directed to go slow on exports.

“Measures have been taken to make exports less lucrative and augment the domestic availability of the commodity,” said Alok Ranjan, managing director, National Agricultural Cooperative Marketing Federation (Nafed), which revises the MEP every month.

Centre mulls fund to check food prices

FE reports

The government is considering setting up a price stabilisation fund along with a market intervention plan for all agriculture products. This is part of the Centre’s larger gambit to rein in the rising prices of agricultural products.

A proposal to this effect is under the consideration of the agriculture ministry. Officials said a concrete plan to this effect would be firmed up after consulting the ministry of finance.

The move comes at a time when inflation has spiked to a two-year high of 6.58%, mainly on account of dearer food and agriculture products.

Update
FE rightly criticizes the move - here:

Sadly, many of the UPA’s policies illustrate a price control mindset. Instead of intervening only when there is demonstrated market failure, it wants to dictate prices.

Besides, what does price stabilisation mean? Does it mean procurement by the government, as with foodgrains? Other than distortions in resource allocation, such intervention will strain scarce public resources. Even if there is no procurement, it is unlikely that farmers will contribute to the fund in boom years, as quid pro quo for compensation in lean years. The fund will, therefore, not be financially viable, apart from the administrative problem of delivering across 90 million small holdings.

Govt to help India Inc keep on buying

Mint reports

The government has decided it needs to help Indian companies with their global acquisitions.
The finance ministry plans to come up with an ‘outward investment policy’ in the April-June fiscal quarter and will specify the criteria on which companies will be eligible for the incentives.
The policy will offer a slew of incentives, including concessional finance, to assist domestic companies expand the global footprint. “We are hoping to be able to begin work on the policy after the budget,” a senior government official, who did not wish to be identified said.

Sugar mills demand transport sop

BS reports

The Maharashtra State Sugar Co-operative Factories Association Ltd. (MSCFAL) has asked the state government to give transport subsidy and compensate losses they might incur on recovery due to extended crushing season.

Due to good monsoon this year, Maharashtra's sugarcane production for 2006-07 season has increased by almost 80 per cent from 445 lakh metric tonne to 700 lakh metric tonne.

Now, the state government is pressing those sugar co-operatives and private sugar mills who have excess capacities to take responsibility of crushing sugarcane. The sugar co-operatives have shown willingness to take this burden but sought financial assistance from the government.

Government bans wheat exports

BS reports

In its latest initiative to control the rising prices of essential food items, the government has banned wheat exports for the whole of 2007.

A notification from the Directorate General of Foreign Trade (DGFT) said the ban came into effect on February 9.

Agricultural commodities, including wheat, have contributed significantly to the steady rise in inflation, which stood at 6.58 per cent for the week ended January 27. The wholesale inflation level in wheat for the same week stood at 11.74 per cent.

Skype refutes Trai charges

BS reports

The Nasdaq-listed Skype has clarified that it is not a service provider nor a grey market operator, but is a software application allowing users to communicate free over the internet. The company, in its reply to the consultation paper on ‘Review of Internet Services’, stated that inclusion of Skype as a “grey market foreign company” was not correct......

The company is responding to a statement by the Telecom Regulatory Authority of India (Trai), which had mentioned Skype as a grey market company. The regulator, in its consultation paper on December 27, 2006, stated that companies such as Skype, MSN and Messenger were offering IP-based telephone services without paying the licence fee to the government.

The regulator had said: “Loss of revenues, unlicensed operation by certain firms and depleting market share of licensed operators are some of the reasons which necessitated a review of policy of internet services and ISP licensing conditions.”....

The US-based company sells ‘SkypeIn’ -- a number which allows the user to communicate over the internet using Voice over Internet Protocol. A ‘SkypeIn’ is being provided for either three or 12 months. SkypeIn is available in 14 countries. It is not available in India.

More

Check this too

Microsoft, Skype seek removal of licensing curbs on Net telephony

NEW DELHI: Global internet telephony major Skype has demanded that India remove all rigid application-specific licensing requirements for internet service providers and replace them with a light-touch regulatory regime. It has also said that ISPs should offer full-fledged internet telephony services.

In its communication to telecom regulator Trai on the review of internet services in India, Skype has said that any revenue loss to the government on account of allowing full-fledged internet services, including internet telephony would be “more than compensated for by revenues generated by overall economic gains, taxes on new broadband and e-commerce services, efficiency savings and by e-enabling government departments”. here

An earlier post on internet through DTH services here

If these two services are permitted than rural telephone, net connectivity can be ensured overnight. one wonders if the govt will drag its feet as usual given the strong vested interests in the continuation of the present system and sadly disconnect the aspirations of a large part of the country.

Tata: we have proof of rivals’ role in Singur

FE reports

Tata group chairman Ratan Tata on Monday reiterated that competitors have had a role in stoking the controversy over farmland acquisition for Tata Motors’ small-car project at Singur, and said he has evidence which he will make public at the right time.

“This is true. We have quite clear evidence about it and we will make it public in due time,” Tata said, when it was pointed out to him that the managing director and CEO of Maruti Udyog Ltd, Jagdish Khattar, had dared the Tatas to name the competitor.

Industry for dumping duty on Chinese equipment

BL reports

The industrial sector today fielded one of the top Indian companies to convey to the Government the need for imposing an anti-dumping duty or countervailing duty on import of Chinese equipment.

Speaking in the context of the manufacturing sector, at a World Bank conference on public private partnership in infrastructure, the Larsen and Toubro Chairman and Managing Director, Mr A.M. Naik, said that with the Chinese currency at artificial levels and Chinese firms getting equity from their Government at zero cost, the firms enjoy a cost advantage vis-à-vis their Indian counterparts.

"In most of the contracts that the Chinese firms bag in India, domestic companies lag by a margin of 5-10 per cent," he said adding that Indian firms have to build in a 14-15 per cent cost of equity.

"Till China floats its currency and abides by the WTO norms, the benefit of low or zero duties (on goods imported to India) should not accrue to Chinese firms," Mr Naik said.

'Industrial sector', the report says. Wonder if it includes importers of these Chinese equipment.

Here's another way of looking at this: "A top industrialist complained that Chinese tax payers subsidize Indian buyers, lowering the price they have to pay for equipment. These products made by domestic companies cost 5-10% more. Now, Government should force these buyers to shell out more."

After tur & urad, traders want delisting of wheat

FE reports

The Indian Merchants Chamber, Federation of Associations of Maharashtra (FAM) and Poona Merchants Chamber have demanded the delisting of wheat from the MCX and NCDEX.

After tur dal and urad dal, the traders want wheat off the list. Kanhaiyalal Gidwani, president of the Maharashtra Pradesh Congress Committee’s consumer protection, market, industry & commerce department has sent a memorandum to the Prime Minister, finance minister and agriculture minister Sharad Pawar demanding a delisting of wheat.

Gidwani said, “Delisting of wheat would bring down prices by a minimum of 15-20%.” FAM president Mohan Gurnani said, “Trading of essential commodities will be successful only if there was a maturity level amongst the transacting parties else it will led to price fluctuations.”

BS in an editorial explains why it would be a bad idea to restrict futures trading - here:

The deeper reason why futures trading is extremely important lies in a strategic sense of Indian agriculture. Where is India going on the terrible distortions of the agricultural sector? Is India ever going to move away from the knee-jerk responses of hurting milk farmers one day by banning milk export, and then trying to set up a minimum support price for milk because milk farmers are unhappy? If India is going to make progress towards a well-functioning agricultural sector, then there is no question that futures trading belongs in it. Futures trading is as much a part of modern agriculture as fertilisers, drip irrigation and bio-technology.

Mr Hooda is not alone in his views. The political and bureaucratic establishment that deals with agriculture is deeply steeped in the mindset of a government that prevents agricultural markets from functioning. For this reason—if not for any other—the regulation of commodity futures trading needs to be moved to the ministry of finance, merging it with all organised financial trading, as is the case with all other mature market economies.

And have a look at this earlier editorial as well - here

If the government is concerned about inflation, meanwhile, it should consider how to strengthen the forces of competition in the system—an objective that could also spur growth. The country’s import basket suggests one course of action—the overwhelming bulk of India’s imports consist of intermediate products, which go into final products. The biggest items of import are petroleum and products, engineering items, minerals and metals. Finished products figure very little, except when it comes to electronic goods and technology-intensive items for which India still has a weak manufacturing base. If the imports of more finished consumer goods were to be encouraged, it would add a new element of competition in the Indian marketplace—and discourage producers from jacking up prices when margins are already comfortable. This suggests sharp tariff cuts as the required course of action. The government has already moved in this direction recently, but more can and should be done—judging by companies’ profits to sales margins.

The other reason for encouraging more imports is that capital can be expected to flow into the country in even greater quantities, following the economy being bumped up to investment grade by Standard & Poor’s (Moody’s did it two years ago). Sterilising the dollar inflow will be a challenge to the Reserve Bank of India, which is already grappling with the issue of monetary growth of 20 per cent. The natural balance is when the surplus on the capital account is matched by a deficit on the current (trade) account. This latter figure is now between 1.5 per cent and 2 per cent of GDP. Given the scale of capital inflow, and the cushion provided by foreign exchange reserves, the case can be made for targeting a higher current account deficit. That means encouraging more imports.

Hyundai Motor workers reject plan to double workforce

Well, this is not about India, but it's worth reading this report that came in FE today, filed from Seoul by AFP

Unionised workers at a commercial vehicle plant of dispute-plagued Hyundai Motor on Friday rejected a company plan to double the workforce by adding another shift.

Of 678 union members at the auto maker's plant in the southwestern city of Cheonju, 428 voted against a tentative deal reached last month by the company and union leaders.

The rejection frustrated the company's plan to hire some 700 new workers and introduce a night shift in order to double production to an annual 100,000 buses.

"We badly need to increase production to meet rising overseas demand. Export orders are backed up for up to four to six months," Hyundai Motor spokesman Jake Jang said.

A lot of us assume that capitalists are for capitalism, but keener observers have pointed out (and the news reports linked here suggest), they don't want new players to get a chance.

Same with workers unions. Apparently they are for workers' rights, but what they end up doing is to make it difficult for other workers -- by putting pressure on the company they work for as in the case above; or on the government as reflected in the tough labour laws in India. Another example here

Cars: Why these high tariffs?

Commenting on the competitiveness of Indian automobile sector, Business Standard writes

So it bears asking why the industry and government want to continue with the current high level of import protection—with basic duties of 100 per cent for cars, and total duties going up in some cases to the region of 160 per cent. Only sin products like alcohol and cigarettes, apart from sensitive agricultural items, continue to attract very high import tariffs—and there is no reason why a healthy automobile sector should enjoy the same privilege. After all, the basic duty on most inputs for the industry vary from 5 per cent to 12.5 per cent, Indian factory labour costs less than it does in most other countries, and productivity levels are now comparable with the best in the world. So much so that Maruti Udyog in India threatens to get bigger than its parent company, Suzuki Motors, in its home market of Japan, and contributes an increasingly sizeable chunk of the latter’s profits. With so much going in its favour, India’s automobile industry does not need to hide behind protectionist curtains.

The story of the high tariffs goes back to the issue of low-cost imports coming in from China, amid allegations that their costing was not transparent and that Indian industry was therefore at a disadvantage. When leading lights of the automobile industry lobbied with the then finance minister, Yashwant Sinha, they were persuasive enough to get exactly what they wanted.

When a government runs a business

Reuters reports

The government ordered sports television channels, radio stations and content providers on Thursday to share live telecast rights with the state broadcaster for sporting events of "national importance" at home and abroad.

Analysts said the move was the first towards a planned law making it mandatory for private broadcasters to share major sports events with Prasar Bharati, legislation the government hopes to pass in the parliament session beginning this month.

"The union cabinet gave its approval to ... the Sports Broadcasting Ordinance, 2007, to make it obligatory to every content right owner and TV and radio broadcasting service provided to share live telecast signals," the statement said.

Please check this earlier post. The same views apply.

Export ban seen easing milk prices in India

Reuters reports

The government's decision on Thursday to ban the export of skimmed milk powder could help ease domestic prices of both milk and milk products, but also erode farmers' earnings and the nation's export credibility, industry officials said.

The ban comes days after a couple of dairies raised retail prices by 1-2 rupees a litre and a half a dozen others declared plans for similar increases, as farmers began charging them more.

However, the markets were also abuzz with talk that the government could impose a ban to boost local availability. The talk proved partially correct with the government decision against powder exports.

"We were presuming that government cannot ban exports and that this was only a rumour," D.K. Jha, general manager for marketing at Gopaljee group, told Reuters.

Proves the point of the previous post, does it not?

Import duty on vegetable oils may be cut

Reuters reports

India, the world’s third-biggest importer of vegetable oils, may cut import duties on palm products to fight rising inflation after the government cut other custom duties, industry officials said on Tuesday.

Representatives of the palm oil industry met food ministry officials to discuss a cut in import duties and the possible impact on domestic prices of oils.

“It was only a review meeting. Government is under pressure because of inflation,” B V Mehta, executive director of the Solvent Extractors Association of India, told reporters after the meeting.

A friend and I were discussing on what should be the right response for moves such as this.

Shouldn't we welcome them? After all, lowering of import duties make markets freer.

But the answer really is 'no, we shouldnt'. The issue here is not the import duty cut, but government's attempt to control prices. It's of course better than banning exports (which would have a similar effect on domestic supply and hence on prices).

Export bias: Sops row may cost Centre Rs 6,000 crore

Mint reports

The finance ministry may lose up to Rs6,000 crore in revenue, if the Supreme Court rules against the Centre in a dispute pertaining to an export incentive scheme.

The dispute is coming up for hearing in the apex court on Thursday. The case pertains to the Duty Free Credit Entitlement Scheme announced by the commerce ministry in March 2003.

The scheme provides 10% credit to the exporter for achieving an increase in his export turnover. The exporter can use this credit to settle his customs duty on imported inputs, instead of cash.
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Some exporters, who were misusing the scheme, were following a modus operandi of purchasing exports from other firms through contract-basis to inflate their turnover. The turnover of just five exporters, who were found to be misusing the scheme, varied from 300% to 3,800%, according to documents submitted to the court by the government.

Similarly, some of the exporters resorted to large-scale export of low-volume and high-value items such as rough diamonds and gold. Export consignments were declared as ‘studded gold jewellery’ or ‘bangles’ at the time of exports, while they were cleared as gold scrap at the port of destination. In one instance, the same set of diamonds was rotating, and these neither entered the Indian domestic territory nor reached the consumers abroad.

Comments later

Mint: In defence of freedom

New business paper Mint says in its editorial

Economic freedoms have increased manifold since 1991. Yet, India continues to have one of the most fettered economic systems in the world. We still live in a country that is technically socialist and where the right to property is not a fundamental right. The state can brazenly take over private land for what it believes to be the public good. The freedom to truck, barter and trade is still suppressed. A farmer cannot sell his grain in the next state. We believe that trade among people and nations promotes specialization, transfers knowledge and advances prosperity. The creative energies of Indians have been suppressed by a state that once had paternalistic ambitions, but which has become increasingly corrupt and inefficient. This paper will be a voice in support of the transfer of power from state to market.

Like this blog does!