RBI steps in to prop up battered rupee
Govt sees Rs 45/$ rate by year-end
Intel chief hawks wares, offers funds for start-up
Wake-up call for power producers
Joshi sets up hump for Maruti selloff proposal
Breakthrough in stainless steel making
Aegon ahead in race to partner SBI

Mumbai, May 25 
The Reserve Bank of India (RBI) unveiled a package of measures to prop up the punch-drunk rupee which plunged today to an intra-day low of Rs 44.74 against the dollar, a 58 paise fall from Wednesday’s historic closing low of Rs 44.16.

The RBI imposed an interest rate surcharge of 50 per cent on import finance and 25 per cent interest on overdue export bills. The central bank also said it would meet either partially or fully the government’s debt service payments directly and that arrangements would also be made to meet the foreign exchange requirements for crude imports by the Indian Oil Corporation (IOC). Crude oil is the single largest component in the country’s import basket.

As a result of the slew of measures, the rupee clawed back at the close of a volatile trading session to Rs 44.05/10 against the greenback.

The RBI also said it would continue to sell dollars through the State Bank of India (SBI) in order to augment supply in the market or intervene directly to meet any temporary demand-supply mismatches.

Stating that the interest rate surcharge would be phased out as soon as possible, the RBI added that no further monetary tightening or administrative measures were being contemplated at present.

At the same time, the central bank said it would ensure that those foreign institutional investors (FIIs) that wish to reduce their investments could do so at prevailing market rates. Authorised dealers (ADs), as in the past and acting on the behalf of FIIs, are free to approach the central bank to procure foreign exchange at the prevailing market rate, it added.

The RBI also advised banks to transact in the forex market only on the basis of genuine requirements and not for the purpose of building up speculative positions; the banking watchdog said it would monitor their positions closely.

Later briefing reporters, Reserve Bank governor Bimal Jalan said the volatility of the rupee stemmed from certain “leads and lags”. Denouncing the market’s attempts to second-guess the Reserve Bank’s `comfort level’ for the rupee-dollar exchange rate, the governor emphasised that the apex bank was not targeting a particular value of the rupee. “The cited round numbers, such as, Rs 42, Rs 43 or Rs 44 hold no significance for the management of the exchange rate for the RBI,’’ he said.

Jalan said the interest rate surcharge on imports was designed to wring out some of the excess demand for imports. The RBI governor also denied that the apex bank was late in announcing these measures. “It is always a question of judgement. We consider this to be the right time’’, he said adding that the measures would be withdrawn after the volatile atmosphere abates.

In early trading on Thursday, a strong dollar demand from banks on behalf of corporates saw the rupee stumble to Rs 44.1850/20. Thereafter, though it witnessed a continuous decline, dollar sales by some state-run banks at certain levels to make up for the demand-supply mismatch was futile as demand was well in excess of supplies.

Late in the afternoon, the rupee breached 44.50 and soon it hit the historic intra-day low. It was at this stage that the markets was told that the RBI would make certain announcements pertaining to the rupee in the evening.

Forex dealers said the announcement sent the market into a tizzy and soon the market was flooded with dollar supplies as buyers huddled along the sidelines.

This cooled down the market and the rupee bounced back to Rs 44.46/50 and later rallied to Rs 44.05/10 at the close.    

New Delhi, May 25 
The government expects the exchange rate of rupee to slide to Rs 45 a dollar by the end of this year if the rate of inflation remains above six per cent.

On a conservative estimate, there is scope for the rupee dipping by another two per cent at the current rate of inflation. However, the trend can be delayed or even reversed in the event of a strong dollar inflow either through foreign institutional investors (FIIs) or foreign direct investment (FDI).

Official sources say the downturn in the value of rupee has been triggered by the hike in the interest rate both in the US and Europe. Some of the FIIs have taken away a portion of their investment.

The government does not have any data about the size of the outflow, believed to be a temporary phenomenon.

Sources say FIIs will bring back the funds once the exchange rate of the rupee stabilises.

The economic activity is picking up necessitating larger imports. This has also increased the demand for dollars. However, the foreign currency reserve position is excessively comfortable. Last year alone, there was a $ 5 billion addition to forex currency reserves.

The Reserve Bank of India (RBI) has sensibly refused to intervene in the market to prop up the rupee. The official assessment is that so far in recent weeks, the rupee has depreciated only one one per cent. A six per cent rate of inflation warrants a minimum of three per cent depreciation. The RBI has no reason to intervene if the rupee depreciates gradually to compensate for the domestic inflation. A sudden depreciation can create a scare in the market.

The government is of the view that at this particular point nothing should be done to hurt the exporting community. A depreciated rupee is the biggest incentive for exporters.

The revival of the stock market is also linked to the exchange rate of rupee. The hike in the US interest rate adversely affected stock even as the rupee began the downward journey. The FIIs will get a better exchange rate if they wait for a while. The rupee is expected to stabilise by next month. FIIs will then bring back the money which in turn will boost the stock market. If the inflow is significantly large, it may even exert an upward pressure on the rupee which may force the RBI to buy dollars.    

New Delhi, May 25 
Intel chief Craig R. Barret turned super salesman today, pushing the $ 42 billion corporation’s products before an assembly of India’s business barons.

However, the sales pitch was only one part of Barret’s package for the Indian software industry. An offer to invest $ 100 million in some 30 Indian start-ups made up the complete package.

Barret who is here on an invitation from the Confederation of Indian Industry (CII) to deliver a ‘CII-CEO lecture,’ stressed the need for India to develop high quality telecommunications and infrastructure for information technology, to become a leading player in the emerging electronic business.

Donning the salesman’s hat for a day, he also performed a skit to demonstrate the benefits of e-business and how it could be enhanced using Intel products.

Barret showed how a Pentium III processor-based PC, running at 1 gigahertz and a server infrastructure based on the Pentium III Xeon processor and Itanium processor-based servers can expand to meet future e-business transaction requirements.

Demonstrating the strength of Intel micro-processors and other products for enhancing the use of the internet, Barret said, “Business to business (B2B) would play a major role in conduct of business world-wide. B2B activity is expected to generate about $ 400 billion by the end of the year and is likely to touch $ 7 trillion by the year 2004. Asia alone is expected to account for 14 per cent of this B2B market.”

He said India had the potential to do business worth billions through B2B. However, that would call for a lowering of internet rates and setting up of a world-class telecom and information technology network in the country.

Later, Barret announced Intel Corporation’s plans to invest $100 million as a venture capital fund in India under its Intel Capital Program.    

New Delhi, May 25 
Power minister P. Rangarajan Kumaramangalam today set a deadline for all independent power producers (IPPs) to start off their projects, failing which their licences will be cancelled.

The minister said by June 30, the government will send letters informing IPPs whose projects have received the necessary clearances but were yet to take-off, of its decision to revoke their licences. “We will send the letters by June 30 to those companies which have received clearances from the government to set up their projects. Their licences would be cancelled if they do not achieve financial closure or have not commenced their projects due to their own shortcomings.”

The minister also stated that the power generation target for the Ninth Five Year Plan has been revised downwards to 30,000 megawatt from 40,000 mw.

The minister further added that the revised target of 30,000 mw would be achieved within the remaining two years in the Ninth Plan. One of the reasons given for revising the Plan target was the failure of private power companies to launch their projects.

“One of the constraints in developing private power projects in the states is the ability of state electricity boards (SEBs) to pay for the power purchased, which in turn depends upon the financial conditions of the SEBs and their ability to recover costs from tariff,” Kumaramangalam said.

Indian financial institutions have been insisting on escrow as a payment security mechanism for lending to private power projects. Since most of the states have problems providing such a cover, many private power projects have been unable to achieve financial closure.

Kumaramangalam said, “The Crisis Resolution Group of the power ministry has decided to move away from escrow and link the financing of IPPs to milestones in reforms to be achieved by each state, such as the monthly letter of credit.”

The Power Financing Corporation has initiated discussions with the states to develop a mutually acceptable agreement outlining the financing of IPPs.

Kumaramangalam said SBI and ICICI have submitted their reports about restructuring central public sector power stations.    

New Delhi, May 25 
The Cabinet committee on divestment will take up Maruti Udyog’s selloff proposal tomorrow despite a bid by industry minister Manohar Joshi to derail the move.

Arun Jaitley and Yashwant Sinha’s ministries, disinvestment and finance respectively, which want to sell off the government’s stake in the car-maker to a strategic buyer, have, however, insisted that Maruti’s stake sale be taken up at tomorrow’s meeting.

Joshi’s ministry says the Maruti divestment plan should be kept on hold till a proper automobile policy is in place which will specify how much stake a foreign buyer can acquire in a car-maker through the automatic approval route.

But finance and disinvestment ministries, which have been trying to speed up the divestment process, argue that even now foreign auto giants can set up 100 per cent subsidiaries here to manufacture cars, albeit with certain prior approvals. So, they argue, there is no neccessity to wait for a policy which simply allows them to set up factories without any more clearances.

While Joshi is in the coalition Cabinet as a nominee of the Shiv Sena, Jaitley and Sinha are BJP ministers. This makes it all the more important for the Cabinet to try and carry Joshi along if it does decide to sell off Maruti tomorrow.

Government officials estimate the sale will fetch about Rs 3,000 crore for equity with a total face value of about Rs 65 crore, which would work out to about Rs 46 a share. Officials say the sale could either be in one single go or in two separate tranches of 26 and 23 per cent. The second option is more likely, they add.

Suzuki, the Indian government’s partner in the car venture has long been trying to pick up the remaining government stake. Especially since the government and Suzuki crossed swords over managerial control of the country’s largest auto-maker four years back and over the government’s stand that Suzuki transfer the key technology to make gear boxes here to the Indian affiliate.    

Calcutta, May 25 
Ranjan Sen, an Indian metallurgist, has innovated a process to replace the costly electric arc furnace to produce stainless steel.

The process, which involves chemical reduction of a mixture of prepared iron and chromite ore by coke in a submerged arc furnace, will cut production cost by Rs 4800 per tonne.

Sen, who has applied for a patent, claims that the use of this technology will reduce the variable and overall costs by 17 per cent and 13 per cent respectively compared to the conventional process.    

New Delhi, May 25 
State Bank of India (SBI) is in talks with insurance majors such as Aegon, Aetna, Axa and some others to foray into the insurance sector.

Top officials of the bank said, “We are talking to several players and want to explore all options. However, these are big names internationally and we would like to tie up with one of them.”

Merchant bankers have, however, put their money on the Netherlands-based insurance company Aegon as the possible joint venture partner of SBI.

“Aegon is the world’s third largest insurance company and it would make immense sense for SBI to tie up with them,” merchant bankers said.

Earlier, Aegon had almost finalised a partnership with Global Trust Bank to enter the Indian insurance market. The deal fell apart due to some differences between the two, they added.

At present, State Bank is waiting for the approval from the Reserve Bank of India (RBI) and the government to amend the SBI Act before it can start work on formalising the insurance venture.

Officials said they expected to get a clearance from the RBI soon. “About three to four banks have approached the RBI for clearance and we hope that it will come through by the month end,” they added.

Officials said that once the RBI clearance is received the consultants would begin the process of shortlisting the possible joint venture partners.

“We hope everything will be in place in the next few months,” they said.

They were also confident that SBI would be among the first public sector banks to get the licence for setting up an insurance venture.

“The government wants to give licences to some very strong players in the first phase to drive home the message that India is serious about opening up the sector. Being one of the strongest banks, we are quite hopeful that SBI will get the licence in the first round itself,” they added.

SBI, meanwhile, is planning to charge a high premium of Rs 350-400 per share when it offers a 26 per cent stake to a foreign partner in its insurance venture. SBI sources said the bank would prefer to enter the insurance sector with a much higher equity compared to the minimum stipulation of Rs 100 crore.

Also it could convert one of its shell companies, SBI Securities which has a paid up capital of Rs 50 crore, into an insurance company.    


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