Cabinet agonises over calamity dole
Rupee woes present rate-hike dilemma
Hindalco to raise power generation
Durgapur Steel Plant to make more loco wheels

 
 
CABINET AGONISES OVER CALAMITY DOLE 
 
 
FROM JAYANTA ROY CHOWDHURY
 
New Delhi, June 11: 

The Cabinet will take up on Monday a move to replenish the National Calamity Relief Fund (NCRF) by Rs 1,700 crore amid stiff opposition from finance minister Yashwant Sinha.

The finance minister feels the money will go down the chute unless a system is introduced under which funds from the corpus are given only when states make matching contributions to calamity relief. By proposing the link between the two elements in his dissent note, Sinha has tried to nip the move in the bud.

The NCRF, used to give ad-hoc, urgent relief to states which are ravaged by natural calamities like droughts, floods, earthquakes, has been depleted considerably as a result of the assistance the Centre handed out to drought-hit states of Gujarat, Rajasthan and Andhra Pradesh. With little left in the kitty, the Cabinet has decided that it must get it replenished.

However, what has upset the applecart is the finance minister’s insistence on norms which will force states benefiting from the fund to prove that they have enough money to match at least a third of the Central funds they want.

Ministers representing allies like DMK, who run a state government in Tamil Nadu, are balking at Sinha’s proposal. Their point is simple: when a state comes with a begging bowl to the Centre to help it out of trouble inflicted by an unforeseen natural calamity, it would be unreasonable and harsh to expect them to go around finding matching funds.

Even several BJP ministers who represent states, which have in the past had to seek money from this fund, have taken umbrage at Sinha’s dissenting note. With the cards stacked against him, it is likely that Sinha, who has been selling the virtues of the second generation of reforms and tighter fiscal discipline as its centrepiece, will eat humble pie.

The capitulation, as appears likely now, will come at a time when critics have been sniping at the finance minister for tax exemptions granted to foreign institutional investors (FIIs) registered in Mauritius. Most important, it will deal a body blow to his efforts aimed at restoring fiscal rectitude.

Sinha has already been snubbed by an ally— Janata Dal’s (United) Ram Vilas Paswan — over his attempts to scuttle the communication minister’s decision to give away free phones to some 3.2 lakh telecom department employees. The facility is estimated to cost the exchequer a whopping Rs 120 crore.

Paswan secured the Prime Minister Atal Behari Vajpayee’ s by threatening to take his decision to the Union Cabinet. He even dared other ministers to oppose it. No one did, for the fear that they would be dubbed anti-worker by the unabashedly populist minister.    


 
 
RUPEE WOES PRESENT RATE-HIKE DILEMMA 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, June 11: 

This is not the best of times for the Reserve Bank of India (RBI). Buffeted by rupee’s woes, it is caught in a catch-22 situation: After having played a handmaiden to the government in reducing interest rates, it is now left with little option but to raise them to defend a currency under siege.

Therefore, the key question is whether the country will see a return to a high-rate regime? The answer is not easy.

The turbulence in the forex markets is being felt elsewhere. Economists are attributing the weakening of the rupee to the scramble among companies to clear their foreign currency-denominated debts.

At the same time, firms do not want new foreign loans.

Adding to the Reserve Bank’s discomfiture is the government’s massive borrowing programme of Rs 1,17,000 crore. This is pushing up rates.

Yields on long-term government securities have risen to levels prevailing before the March 31 Bank Rate and CRR cuts. Yields on a 10-year paper, for instance, are now pegged at 11.20 per cent, up from 10.85 per cent in March.

Already, government securities with tenures of 10 years and above have devolved on the central bank.

Two weeks back, it had to shoulder 97 per cent of the issue at a Rs 5,000-crore auction. Things were no different last week, with 100 of a Rs 100-crore issue devolving on it.

There is growing apprehension among bankers that a hike in local interest rates is only a matter of time because the RBI cannot ignore the harsh market realities — the most important of which is the fall in the value of the rupee —and perforce has to roll back low-rate measures introduced in April.

Meanwhile, the US Federal Reserve has already hiked its interest rate by 50 basis points to 6.5 per cent. More increases are expected.

With yield rates inching up, analysts say the RBI will have its hands full. The apex bank in the country has to raise over 70 per cent of the government’s Rs 1,17,000-crore market borrowing programme without raising interest rates.

In addition, the Reserve Bank has to contend with a finance minister who talks about giving the central bank more autonomy on the one hand but, on the other hand, makes veiled statements on the direction interest rates should take.

The measures taken by the RBI before the credit policy announcement, such as the cuts in the Bank Rate and CRR, have failed. So have the recent steps taken to arrest the decline the rupee’s fall.

The finance minister has, in the past, said the cost of funds in India continues to be high and that Indian industry, services and agriculture cannot be globally competitive unless transaction costs are reduced.

But, it appears that he has little leeway to ensure that rates are kept low.    


 
 
HINDALCO TO RAISE POWER GENERATION 
 
 
BY PALLAB BHATTACHARYA
 
Calcutta, June 11: 

Hindalco, the Aditya Birla group flagship, is planning to invest Rs 500 crore to augment its captive power generation capacity by 150 MW. Sources said the increase in capacity is required to carry out the massive expansion plan the company has drawn up for its smelting operations.

“We have decided to increase our smelting capacity by 1,00,000 million tonnes annually. In order to reduce the cost of production, we need to raise our power generation levels,” the sources added.

The increase in generation capacity, they said, will be achieved in a phased manner over a period of three years.

The investment for this purpose will be raised largely by dipping into the company’s internal resources, the sources said. A major portion of it will be channelled into Hindalco’s Renusagar power plant, which currently generates over 4000 million units annually.

As one of the country’s top ten companies with over Rs 1,800 crore in annual turnover, Hindalco has a 40 per cent market share in the domestic aluminium market.

A senior official said the company is looking to increase its market share by 5 per cent during the current financial year.

Hindalco, which has a production capacity of 2.42 lakh million tonnes per annum, is in the process restructuring its product mix to strengthen its core areas.

The rolled and extruded products form important elements in the company’s product portfolio, growing at the rate of 30 per cent but the production of wire rods and aluminium have remained poor.

The company is making a foray into foils, especially after it took over Indian Aluminium and its joint venture, Annapurna Foils. It plans to expand its alumina refining capacity by 2.1 lakh million tonnes in order to be self sufficient in key inputs.

“We expect the aluminium consumption in the country to increase by 8 per cent in the current year, particularly because of growth in sectors like transportation, building construction, consumer durables and packaging,” sources said.

Even the electrical equipment sector, which has been in a difficult times of late, is now making a strong recovery. This is expected to benefit the aluminium industry, the sources said.    


 
 
DURGAPUR STEEL PLANT TO MAKE MORE LOCO WHEELS 
 
 
BY A STAFF REPORTER
 
Calcutta, June 11: 

The Steel Authority of India Ltd’s (SAIL) Durgapur Steel Plant (DSP), has decided to increase its locomotive wheel production by over 200 per cent during the current financial year. The move is aimed at meeting the entire demand of its main customer, Indian Railways.

Sources said the plant plans to produce around 30,000 loco wheels in the current year, up from the last year’s 11,345 units. “We intend to become the sole supplier of these wheels, for which we are gearing up the production facility,” they said. Locomotive wheels are currently priced at Rs 24,000 per unit while broad gauge coach wheels are at Rs 16000 per unit.

DSP claims its products are much cheaper than the imported loco wheels and are zero defect.

DSP commenced the production of loco wheels around five years back and its supply stood at barely 2439 units in 1998-99.

“Currently, the wheel & axle department is probably the breadwinner for this plant, which is making heavy losses in several other areas of operations,” sources added. While the Railways is increasing its order for the loco wheels, it has sharply reduced orders for coach-wheels, much to the DSP’s chagrin.

DSP supplied 35,256 units of broad gauge coach wheels in 1997-98, which declined to 31,182 the next year and to 27,967 in 1999-2000.    

 

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