Govt may ask Reliance to halve Maha Mumbai SEZ

ET reports

THE government may ask Reliance Industries to scale down the size of its proposed multi-product Maha Mumbai SEZ from 10,000 hectares to 5,000 to avoid dislodging farmers and villagers unwilling to relocate. The decision is expected to be taken at the next meeting of the empowered group of ministers (eGoM) on SEZs.

With rising protests from farmer groups, political parties and small businesses intensifying in the state, the government’s proposal could be seen as an attempt to prevent a repeat of the violence in West Bengal’s Nandigram.

“If Reliance scales down its operations by half in Maha Mumbai, the sensitive areas could be excluded from the zone and peace restored,” the official said. The Board of Approval for SEZs, in an earlier meeting in August last year, had observed that land planned for building the Maha Mumbai SEZ was much more than required. With the situation hotting up, the eGoM headed by foreign minister Pranab Mukherjee is expected to ask Reliance to reduce the size of the SEZ, sources said. The date for the eGoM, which will also decide on the future course of the SEZ policy, has not yet been firmed up. It is being widely speculated that the meeting will take place only after the UP assembly elections are over.

I see a paradox in special economic zone. It's supposed to mean less government control on operations of businesses - tax incentives, less stringent labour, environmental laws etc. But, day after day, i only see more government intervention - including land acquisitions by government agencies, police atrocities etc. This is another example. There is a blog that tracks SEZ's and it's so aptly named. Check out.

Imports and fear of abundance

FE reports

The government on Friday said it would consider reducing duties on luxury goods imports without affecting the domestic market.

“If the industry comes up with some items on which duties can be brought down without hurting the local industry, we will be happy to look at it,” commerce and industry minister Kamal Nath said. Defending the high tariff on imports of goods like leather and textile products, the minister said it was to ensure that cheap imports from countries like China does not flood the local market.

He also said that the duty on high value goods can be brought down on the lines of a model which would be adopted in the case of wines and spirits. Nath said, “We recognise that duties on wines is high. We are looking at lowering tariffs. We are in the advanced of negotiations and the issue will be addressed.”

This sentence is so revealing, is it not? "If the industry comes up with some items on which duties can be brought down..."

Flooding the local market is another. Please do have a look at Bastiat quote in this earlier post

Exporting onion

Reuters reports

India on Friday cut by $40 a tonne the minimum price at which onion can be exported from the country, aligning it with the fall in local prices and giving a thrust to exports.

The National Agricultural Cooperative Marketing Federation of India (NAFED), a government agency, had in February raised the minimum export price (MEP) by about 30 percent across regions, to discourage exports amid surging local prices.

"Now, arrivals have improved and prices have fallen across the country. So, we decided to reduce the minimum export price," a senior NAFED official told Reuters from New Delhi.

Tyre manufacturers seek ban on rubber futures

BS reports

Stating that rubber futures are not helping in "price discovery" and "risk management", tyre manufacturers have demanded a ban on forward trading of the commodity.

In a letter to the Commerce, Industry and Department of Industrial Policy and Promotion Secretaries, the Automotive Tyre Manufactuers Association (ATMA) has said the demand for ban on rubber futures is no different from the bar imposed by the Centre on forward trading in urad, tur, rice and wheat. The New Delhi-based ATMA is the apex body of tyre makers in the country.

"The steep increase in the price of rubber has imposed severe financial burden on the tyre industry. Further, since rubber is the prime raw material for the production of items such as chappals, battery boxes, condom, hoses and thousands of other items, the steep price increase has forced hundreds of manufacturers to close shutters and most others are at the verge of closure or facing a difficult time due to exorbitant increase in input costs," ATMA said in the letter.

New semi-conductor policy has place for only 2-3 fabrication units

BL reports

The Government has decided to allow only two or three companies to set up fabrication units in India with incentives specified under the semi-conductor policy.

However, it will permit ten companies to take benefit of the fiscal measures for manufacturing devices that include Liquid Crystal Displays (LCD), solar cells and storage devices, which essentially form part of the eco-system.

An Appraisal Committee comprising high-level officials from the Department of Information Technology and the Ministry of Commerce and Finance will decide on which companies will be given the incentives.

Notifying the semi-conductor policy, which was cleared by the Union Cabinet in January, Mr Dayanidhi Maran, Union Minister for Communication, Information and Technology, said, "We expect to attract investment of Rs 24,000 crore in this sector in the next three years. We are sure that many big players are willing to invest. Since we have the capacity for 2-3 fabrication units, we will have the choice to pick the best."

Can't say i was impressed with semi-conductor policy in first place, and so this is not to complain why restrict these incentives only to three players. It's more to do with the underlying assumptions. Just look at the last line. It's the same attitude that made our government to take it upon itself to decide how much should be produced and what. Todays ministers might talk as if they are for free markets - but their words speak louder ;-)

Privatisation is still relevant

The ever-sensible Ajay Shah writes in BS

But equally, there is no industry in India where the licence-permit raj hinders entry more than in the case of banking. At a time when the Indian economy is booming, and every kind of business is being created, the one industry where we see no new firms starting up is banking. This has surely got to do with government restrictions on entry.

There is absolutely no industry in India where the opening of branch offices by foreign firms and private firms requires permission from the government. When Ford operates in India, it has to obey rules on FDI, but after that, it never has to go back to the government to take permission to open offices. What is worse, all foreign banks—put together—are given permission to open 12 branches per year in the full country. There is no worse instance where contemporary Indian policy-making is animated by ideas from the 1960s.

Left parties up the ante against increase FDI cap in insurance

FE reports

The Left parties, however, re-iterated their stand on the issue saying that they were still opposed to the proposal of raising FDI limit in the sector. “We will not allow the government to raise the FDI limit.

If the government does so on its own, we are free to take a decision on the issue on our own,” CPI MP Gurudas Dasgupta told reporters after the meeting.

And thus unwittingly help the rent-seeking capitalists, they say they are against.

Cost of protectionism

Mint reports

The imposition of export duty of Rs300 per tonne in the recently submitted Union Budget is threatening to put Goa’s barge owners out of business.
Barge owners in the coastal state transport iron ore to ships waiting at Mormugao port that then feed the hungry steel mills in China.
In just 15 days since the duty was announced, the number of trips made by barges has dwindled. From 10-15 trips in a fortnight, it has come down to four to five, according to Atul V. Jadhav, managing director, New Era Shipping Ltd and president of the Goa Barge Owners Association. “Very soon, we will be out of business,” Jadhav says.
Goa exports about 36 million tonnes of iron ore out of India’s total ore exports of 100 million tonnes. The barge owners are paid Rs59 per tonne per trip, by ore exporters such as Sesa Goa, Chowgule, Dempo and Timblo as per an agreement between the Goa Barge Owners Association and the Goa Mineral Ore Exporters Association.

We are so used to read stories about how people lose jobs because an inefficient business is allowed to close, or when consumers are allowed to buy cheaper imports. But we hardly get to read about opportunities lost because of government restrictions.

Steel industry seeks cap on export of iron ore

BS reports

The steel industry today demanded that the government place a quantitative restriction on iron ore export at 90 million tonnes for the current year, in a move to keep more raw material at home.

“Iron ore export needs to be limited because there is a shortage in the supply of iron ore to the domestic steel industry,” Moosa Raza, president, Indian Steel Alliance, said at a press conference organised by industry body Assocham.

The industry has also asked for a 15 per cent reduction in the cap on iron ore export every year until the exports are brought down to zero per cent. India currently exports close to 100 million tonne iron ore, mostly to China.

Restricting exports is a long standing demand of the steel industry which feels that iron ore needs to be preserved to meet the capacity expansion plans of the indigenous steel sector.

Domestic dredging cos get policy support

BL reports

Indian dredging companies will enjoy first right of refusal if their rates are within 10 per cent of the lowest valid offers in bids for major port contracts.

The Shipping Ministry's new dredging policy, which is designed to give Indian companies owning Indian flag dredgers an edge while bidding for contracts, states that all 13 major ports "shall invite open competitive bids for dredging works, and Indian companies owning Indian flag dredgers shall have the right of first refusal if the rate is within 10 per cent of the lowest valid offers."

The policy will take effect on April 1 and remain valid for three years. It will apply to both maintenance and capital dredging works, with the exception of maintenance dredging requirements of the Kolkata port, for which separate instructions will apply.

The move comes on the heels of total exemption from import duty for dredgers in Budget 2007-08.

Indian lawyers and foriegn law firms

BS reports

The Bar Council of India (BCI) has opposed the All-India Bar Association’s declaration in London that the BCI had withdrawn its opposition to the entry of foreign law firms into India.

The council reaffirmed its stand that it was opposed to foreign law firms setting up offices here and foreign lawyers appearing in Indian courts.

BCI Chairman Jagannath Patnaik today said the council, set up under the law, represented the legal profession in this country and no private organisation was authorised to state that foreign law firms could set up offices here.

He indicated that the council might take action against the lawyers who made unauthorised statements in London. The Bar Council of Delhi has initiated action against the lawyers and set up a committee to deal with the matter.

Assocham wants more export deterrents

PTI reports

Complimenting the finance minister on his proposal to impose a Rs300 per tonne duty on exports of iron ore, industry body Assocham has advocated that the government should further discourage such exports to conserve the country’s natural resources.
“Our endeavour should be to discourage export of any raw materials and rather strengthen our manufacturing base to generate employment opportunities and create wealth for Indians,” Assocham president Venugopal N. Dhoot said in a statement.

Centre studying demand to ban corn futures trade

Bloomberg reports

The government is examining demand by domestic poultry farmers to ban futures trading in corn amid a surge in local prices, minister for agriculture Minister Sharad Pawar said.
“We’ve received a request from the poultry industry this week that the futures be banned. We’re studying the request,” Pawar said in the Lok Sabha on Monday. “We will apply our mind take a proper decision.”
India’s government has permitted duty-free imports of corn and banned exports by non-state-run trading companies to fill a production gap that caused local prices to jump 30% last year. Output may fall 15% this year to 12.8 million tonnes, according to the All India Starch Association.
“A ban or some kind of restriction on futures trading will drive out speculators,” said Amol Sheth, president of All India Starch Association. “This will help bring down prices at a time when there’s a shortage.”
Corn prices for March delivery fell as much as Rs17.50 per 100kg or 2.3%, to Rs739 on the Mumbai-based National & Derivatives Exchange. They traded at Rs744 at 3:14 p.m. Prices rose to a record Rs853.50 in November.

Protectionism and profitability

In a good editorial BS writes

What about creating greater equality of opportunity, so that wealth does not accumulate in the hands of a few? This is the nub of the issue. India has failed to provide basic nutrition, health and education to hundreds of millions of its citizens. At the same time, it has protected too many markets—so those who own assets (like land) find the value of their holdings sky-rocketing, as the new real estate tycoons will admit. The same conclusion of excessive protection is indicated by profitability levels (an average of more than 10 per cent of sales) in the leading companies. This is high by any international yardstick, and suggests that we need more competition in the system (still lower tariffs), and more players in every product or service market (like telecom). If profitability drops as a result, so will share prices and wealth. In other words, the systemic problems that the wealth-poverty divide points to are the lack of attention to the needs of the majority at the bottom, and excessive cosseting of markets.

In another editorial it raises even a more interesting point.

At one level, the government is duty-bound to investigate fully the precise nature of the Ghosh-Singh holdings. At another, this complex arrangement raises questions about the enforceability of sectoral caps in shareholding. The problem in the immediate case has also been caused by lax supervision. The arrangement was made a year ago and disclosures made to the department of telecommunications in April and subsequently to the FIPB. The FIPB then issued a letter confirming the deal to Hutch-Essar in August. It is obvious that the FIPB’s decision now to go afresh into the whole question has been provoked by shareholders who want to put a spoke in the Vodafone wheel. This is reminiscent of government meddling in corporate battles in the eighties. It is true that, unlike such skirmishes as Swraj Paul versus H P Nanda, and M R Chhabria versus Shaw Wallace, government-owned financial institutions (FIs) no longer play a key role in determining the outcome of takeover battles. But as the Hutch-Essar affair shows, the government still has the power to influence corporate battles if it so chooses.

More here

Kerala earmarks Rs 17cr for sick PSUs` revival

BS reports

The public sector enterprises have got a lot to cheer about, finally. The state budget for 2007-08 has earmarked Rs 17 crore for revival of the sick PSUs, while more funds are expected to flow in from the state exchequer for modernisation efforts, estimated to cost around Rs 76 crore.

This apart, the government has lined up a new company, to be christened Infrastructure Kerala Ltd, in a bid to aid industrialisation efforts.

Work on setting up of the company, which will have a paid-up capital of Rs 100 crore, is learnt to be in its final stages. While the government will own 26 per cent in the company, the remaining would be with the non-resident Keralites (NRKs).

Franchisee fee

Did you know there is a 5% cap on franchisee fee. BS reports

The Franchise Association of India (FAI) has demanded removal of the 5 per cent cap on franchise fees.

“We want liberalisation in the area of franchisee fee payment by the franchisee to the franchiser. This is particularly important in the case of foreign franchisers. At present, there is a cap of 5 per cent on payment of franchise fees. This needs to be done away with,” said C Y Pal, national president, FAI, on the sidelines of India Franchise Expo 2007 here

Subsidies: Videocon mulls Rs 1000 crore fab facility

BS reports

The Videocon group, the country’s largest consumer electronics and durables manufacturer, is contemplating setting up a semiconductor facility. The fast moving consumer goods (FMCG) major, which intends to invest upwards of Rs 1,000 crore in the proposed facility, is currently in the process of evaluating various locations such as West Bengal.

“We have already signed an NDA (non-disclosure agreement) with the world’s largest technology patent company for technology partnership and are currently on the lookout for a suitable location. At present, we are looking at opportunities in West Bengal as it is promising better subsidies and infrastructure,” Videocon chairman Venugopal N Dhoot told mediapersons here on Sunday, while declining to disclose the name of the company it had signed the NDA with.

“However, we may consider Andhra Pradesh or any other state if it doles out even more favourable incentives and sops,” he added.

What really surprises me is the righteousness with which these companies demand other people's money. It's almost like a customer asking a shopkeeper, give me a discount, or i will go to next shop. Only in this case, its money that's collected also from poor people.

Cements: Patently cartelised: CCI-backed study

FE reports

A study commissioned by the Competition Commission of India has said that the cement industry was dominated by a few big players and was “patently cartelised”.

The study, undertaken by the School of International Studies, Jawaharlal Nehru University, in January this year to assess the state of competition in the cement industry has said the primary objectives behind cartelisation were to divide the market amongst themselves and also price fixation.

CCI sources told FE that a copy of the study would be sent to the commerce & industry ministry. They, however, qualified that the CCI did not necessarily subscribe to the findings of the study, which was undertaken as part of an academic exercise and for capacity building of the institution, they added.

The study, however, points to three specific aspects of the cement industry and its players, which could be seen as anti-competitive under the country’s Competition Act. One, it says, the market appears to be split amongst companies. It, however, adds more evidence was required to show if the market sharing arrangement was reached by a tacit agreement between companies. Two, while margins for companies varied significantly, sale price was more or less the same. This clearly pointed to price fixation by the companies, either by covert or overt agreement, it said

Three, it points out that the huge difference between retail prices and the ex-factory price was unjustified, again indicating price fixation by companies.

Defending free market weakly

BS editorial on government's recent actions to control prices

The moves are undesirable for a variety of reasons. Most importantly, not allowing free market play distorts price signals. With the economy growing at over 8 per cent for four years on the trot, and 9 per cent in the current year, it should be obvious that prices will go up if fresh capacity does not come up. This applies not just to cement or steel but also to all industries that have been functioning at near capacity for some time. If, however, prices are not allowed to rise, it is not clear how fresh investments will come in, since potential investors will see no upside. As in the case of the ban on commodity futures, there is little evidence that cement exports are the reason for the price rise, or that the price rise is excessive in comparison with the Rs 190 per 50 kg bag of cement, which the FM says is remunerative. For one, exports comprise just about 5 per cent of total supplies; demand is growing much faster. There is also the issue of cyclicality of prices/profits. Many industries accused of profiteering, including cement, are those that were operating on wafer-thin margins not too long ago. Surely, any talk of profiteering should have kept this in mind

It starts by rightly bemoaning how markets are becoming less free. But sadly the reasons it gives are weak.

Take this. "This applies not just to cement or steel but also to all industries that have been functioning at near capacity for some time. If, however, prices are not allowed to rise, it is not clear how fresh investments will come in, since potential investors will see no upside." If prices are not allowed to rise, it's great for exporters, is it not? Probably the writer meant, if businesses are not allowed to set their own prices, it is not....

Take this. "For one, exports comprise just about 5 per cent of total supplies; demand is growing much faster." Even 5% can make a lot of difference to price - when there is limited supply and people think a commodity is essential and have money to pay for it.

DD`s free signals abroad cost Neo Sports dear

BS reports

With about 15 million TV homes in West and East Asia ready to receive un-encrypted sport signals beamed by Prasar Bharati on its direct-to-home (DTH) service, Neo Sports, which has bought for Rs 2,714 crore the rights for all cricket matches in India for five years, stands to lose more than Rs 600 crore in the next three years.

The issue is behind the sport broadcasting company’s ongoing battle with the BCCI on the one hand and the information & broadcasting ministry on the other. The government, through a bill passed today, has made it mandatory for sport broadcasters to share feed with Doordarshan.

But with the state broadcaster beaming un-encrypted signals on its DTH platform which covers the whole of West Asia, East Asia and even the UK, viewers there are getting the feed without paying a penny to Neo or its partners in these countries.

It's amazing how a piece of law can make robbery a right!

Sugar: Working at cross purposes

Mint has two reports, which reminds me of what Milton Friedman said in one of the episodes of Free to Choose - government departments working at cross purposes.

Report one:

Sugar mills prohibited from selling entire production at market rates | Sugar mills prohibited from selling entire production at market rates:
India, the world’s biggest sugar user, has no plans to allow sugar mills to sell their entire production at market rates, farm minister Sharad Pawar said.

“I don’t have any proposal and neither are we thinking about it,” Pawar said.

India may allow mills to sell their entire production at market rates from 1April as the government seeks to decontrol the sugar industry, a leading newspaper reported.
The government may spend more than $225 million (Rs 1001 crore) to sell sugar at below market rates to the poor through ration shops, replacing the so-called quota system, the report said. The levy obligation requires producers to sell 10% of their output to the government at below-market prices for resale to the poor.

Indian sugar producers can sell 90% of their output at market rates, while the government usually fixes the quantity and time of the sale every month.

Report 2:

Govt mulls over sugar export subsidy | The government is considering giving an export subsidy for sugar to mill owners in the wake of fears of glut in the domestic market : The government is now considering giving an export subsidy for sugar to mill owners in the wake of fears of glut in the domestic market.“The matter (of sugar export subsidy) is still under consideration of the government,” Singh said.
Global sugar prices, which stood at over 450 dollars a tonne when its exports were banned in July 2006 to check rising prices in the local market, have since declined to around 335 dollars per tonne.

What! Militants behaving like governments

AXN is back in rest of the country. But look what's happening in Kashmir. Guardian/AP reports:

There will be no more ``Desperate Housewives'' for residents of Indian Kashmir. They will have to do without ``Friends'' reruns, too. Four foreign television channels have been pulled from the air in Indian-controlled Kashmir after Islamic militant groups demanded cable companies stop airing ``obscene'' shows, cable operators said Wednesday.

``As militants have asked us to stop airing obscene channels, we've suspended broadcasting English channels like HBO, Star Movies, Star World and Sony Pix,'' said Muzaffar Ahmed, a TV cable operator in Srinagar, the summer capital of India's Jammu-Kashmir state.

On Sunday, two militant groups in a telephone call to a local news agency, Current News Service, advised TV cable operators to drop channels that the groups say spread obscenity.

Industry against govt's order to use jute bags | BS

Did you know this? BS reports

Domestic sugar industry, which is already incurring losses due to a supply glut, is strongly against the government’s order to compulsorily use jute bags for packaging the commodity, a senior industry official told NewsWire18 today.

“The government’s order to use only jute bags for packaging sugar has been issued to please the Left Front, which rules West Bengal — the major jute-growing state,” said Prakash Naiknavare, managing director, Maharashtra State Cooperative Sugar Factories Federation.

The government earlier issued an order for 100 per cent use of jute bags for packing sugar, but subsequently diluted the same, allowing up to 30 per cent use of polypropylene bags. The industry should be allowed 100 per cent use of PP bag, as it costs half the price of jute bag, said an official of a Kolhapur-based sugar mill.

The industry needs 500 million bags during the current season ending September. While the cost of 500 million jute bags is nearly Rs 1,300 crore, it is just Rs 600-700 crore in the case of PP bags, said the official.

“We are not in a position to bear the additional burden of Rs 600-700 crore, as we are already reeling under heavy debt,” the official added.

Due to the ongoing six-week long strike by jute industry workers, the availability of jute bags is also a problem. Currently, these bags are imported from Bangladesh.

Wine makers want protection because the sector is young

Reuters report

Indian drinks firms do not oppose lower tariffs and taxes on imported wines and spirits, but want some concessions so they can compete with bigger rivals in the country's fast-growing $1.8 billion alcoholic drinks market.

India's basic import duties on wine and spirits are 100 percent and 150 percent, within WTO rules, but some federal and state-level taxes can push tariffs above 500 percent, prompting the European Union to press for cuts.

High tariffs mean most Indians can only afford cheaper local drinks, splashing out on foreign wines and whisky only on special occasions or when travelling abroad.

Faced with sluggish home markets, foreign firms are eyeing India, where rising incomes and more liberal attitudes to drink, especially in urban areas, are fuelling a consumption boom.

"We can go ahead with tariff cuts, but we are against allowing imports of cheap wines," said Arun Shah, a director of wine maker Chateau Indage Ltd..

"We believe the industry needs some protection because it is so young," he said, adding wine makers do not want India to allow imports of wine that cost below $10-$12 a case.

Govt says may ban cement exports

Reuters reports

The government may consider banning cement exports if such a move would help bring down prices, Commerce and Industry Minister Kamal Nath said on Wednesday.

"We will look at that (banning cement exports) if it helps bring down cement prices," Nath told reporters.

Indian cement makers have said they are unwilling to lower prices following a duty increase last week, but have pledged to raise capacity as the government battles to tame inflation.

More

India in dispute over the price of condoms

FT reports

The World Bank and the UK’s Department for International Development have refused to finance the Indian government’s purchase of condoms to fight HIV/Aids because of an alleged lack of transparency in procurement procedures, the Financial Times has learnt.

HIV prevention organisations are angry about the high cost of government-procured condoms, saying that scarce funds are being wasted in India, which has the world’s biggest HIV caseload, according to UNAIDS, with an estimated 5.7m carriers last year.

“Domestic preference is playing a role here that it wouldn’t in other countries, leading to a situation where India is paying 30-40 per cent more than the world average,” said a senior international civil servant running an HIV programme in India. “It is very frustrating but the government says it’s non-negotiable.”

The head of a non-governmental HIV/Aids body said: “Over a billion condoms are being manufactured under government contract every year at a price that is 25-40 per cent above the market price. It all looks very ugly to me.”

----
The government now obtains condoms from local manufacturers such as the state-owned Hindustan Latex, which supplies hundreds of millions of contraceptives required under National Aids Control Program-III, a five-year plan starting next month.

--
full story here

Imports a threat, says Ruia

BS reports

Pawan Kumar Ruia, chairman of Dunlop India, said today that the tyre industry would be hit by the reduction of peak customs duty to 10 per cent as it would intensify competition in the low-margin, high-volume tyre industry.

Cheap imports would flood the market and things would get difficult for the Indian tyre industry because excise duty on tyres had not been reduced despite several representations from the industry.

There had been a steep increase in natural rubber prices in the past three years but customs duty on imported natural rubber had not been reduced.

However, the damage would be partly compensated by lowered import duties on inputs like synthetic rubber, butyl rubber, carbon black, polyester tyre cord and styrene butadiene rubber.

FM tackles inflation

BL reports in a frontpage lead:

Reacting to the CII President, Mr R. Seshasayee's comment that differential taxation on cement is an attempt to influence and control prices, Mr Chidambaram pointed out that a month ago he had asked the industry to hold prices and cautioned that "entrenched core inflation" would work to its disadvantage.

"A month back at a FICCI meeting, I had asked all of you (industry) to moderate and maintain stable prices and ensure that there is no entrenched core inflation. I am thankful to everyone who did so, but the cement manufacturers did not do so," he said. The Finance Minister said that pricing power has returned to the cement industry and prices have gone beyond reasonable levels.

The dual duty was intended to reward those with an inclination to hold price line and tax those who did not. "I don't know if this (differential tax) will work," he said.

And we call him reform minded!