Institutions nudged closer to universal banking goal
Tea sale blitz waits for funds
IOC likely to buy Nagarjuna refinery stake
State wants to tap BSNL fibre network
Sinha’s food for thought
Telco-Peugeot car plan gets swadeshi hue

 
 
INSTITUTIONS NUDGED CLOSER TO UNIVERSAL BANKING GOAL 
 
 
FROM OUR SPECIAL CORRESPONDENT
 
New Delhi, Feb. 11: 
The finance ministry is in favour of a proposal for converting developmental financial institutions such as IDBI and IFCI into licensed banks which offer a wide range of services, even as project financing is retained as a focus area.

The ministry also wants an end to cross holdings between FIs to foster transparency and competition.

“The ministry feels the D. N. Ghosh committee report on IFCI’s restructuring is in tune with its own thinking. The time to promote universal banking has come,” officials in the ministry say.

Allowing DFIs to turn into universal banks means removing the ‘Chinese Wall’ which sets them apart as long-term investment houses that are not allowed to enter the safer havens of post-project loans and short-term lending markets.

Several FIs, especially IFCI, have burnt their fingers by lending large amounts to the wrong industries, especially steel, in loans which went sour.

“We want to allow these institutions to convert themselves into normal licensed banks, not merely because of this, but also because it makes no sense to retain the artificial barriers,” officials say.

Merger and acquisitions between DFIs and banks should be permitted to build up a large, viable universal banking organisations. However, finance ministry officials insist that risk-monitoring analysis and managerial capabilities have to be developed before the ‘Chinese Walls’ crumble.

The institutions will have to follow the stringent reserve requirements imposed on banks once they are converted. However, they might find it difficult to do so given the sorry state of their finances.

As a way out of the problem, the Ghosh Committee report has recommended that the term-lending banks — DFIs-turned-commercial banks whose project financing portfolio constitutes at least half its total assets — should be exempted from reserve obligations.

Finance ministry officials say they are still studying the issue, and that it was too early to say whether the plan is feasible.

“The Reserve Bank of India will have its own considered opinion. We have to see what it says on the issue,” the officials said.

The other recommendation made by the Ghosh panel, that term-credit banks should be allowed to include loans advanced to infrastructure as priority sector lending, is being examined by the central bank.

The government feels the RBI is in the best position to decide whether the idea should be implemented or not.

   

 
 
TEA SALE BLITZ WAITS FOR FUNDS 
 
 
BY SUTANUKA GHOSAL
 
Calcutta, Feb. 11: 
Shortage of funds has held up the much-talked plan for generic promotion of tea, Indian Tea Association (ITA) chairman R.S. Jhawar said.

With domestic tea consumption not growing as fast as expected, the industry had planned a three-year generic promotion campaign from September 2000 at a cost of Rs 16 crore.

“The Consultative Committee of Planters’ Association had taken an initiative to launch a generic promotion campaign based on the health attributes of tea. Preliminary plans have been drawn up for a public relations (PR) campaign soon. It will be followed by a mass-media TV blitz,” Jhawar said.

The campaign will be two pronged —to attract youth to tea and to make people conscious that the it is actually a health drink. The government, he said, is aware of the problem and has pledged financial support for the campaign.

“However, the bulk of the expenditure in running it, least Rs 6 crore annually, will have to come from the industry. The campaign has been held up for want of funds. I have urged the industry to chip in with financial assistance,” Jhawar said.

The ITA chief said the country’s tea industry is in the throes of an unprecedented crisis. “We have faced problems in output, yield and prices, but the present situation is unique,” he added.

According to Jhawar, a large chunk of the output has been selling below its cost of production in the past two years. The Cachar variety, for instance, has been taking a beating. “In the past, financial burdens in the form of operating losses were relatively small. Today, the losses are massive and unless timely action is taken, the industry will be in trouble,” he said.

What has made matters more difficult is the onset of global competition in the form of imports from Saarc nations. Under the WTO agreement, the government will lift all quantitative restrictions on tea from April, which will expose producers to the threat of cheap varieties from abroad like never before.

   

 
 
IOC LIKELY TO BUY NAGARJUNA REFINERY STAKE 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, Feb. 11: 
Indian Oil Corporation (IOC) is considering the acquisition of a stake in the 6 million tonne refinery being set up by the Nagarjuna group. The refinery is being implemented by Nagarjuna Oil Corporation (NOCL), with a capital outlay of Rs 3,500 crore.

Senior IOC officials, while admitting the company has received a proposal from the Hyderabad-based group, said the company is yet to take a decision on the issue. “We have received a proposal from them. However, no decision has been taken,” an official said.

As per the initial equity pattern being worked out by the company, while the Nagarjuna group will hold 51 per cent, 11 per cent will be held by TIDCO and the balance is likely to taken up by strategic and financial investors (who are likely to hold a 26 per cent stake) and the public.

Confirming the development, senior institutional sources said while the Tamilnadu Industrial Development Corporation (TIDCO) is an equity partner in the project, foreign oil majors too have evinced interest in acquiring a stake. Among the foreign majors, Mobil Corporation and Catex are believed to be potential contenders, apart from Kuwait Petroleum Corporation.

Sources said a major advantage of roping in the IOC as a partner in the project would be its strong distribution network in the country. However, sceptics aver that IOC is unlikely to pick up an equity stake in the venture promoted by the Nagarjuna group as it is on the verge of taking over the Chennai Petroleum Corporation which has a stand-alone refining capacity of 6 million tonne.

Further, IOC also plans to set up a 9 million tonne Nagapattinam refinery, originally proposed as a joint venture with Chennai Petroleum.

The Nagarjuna refinery project involves a relocation of Mobil’s refinery from Woerth, Germany, which includes the main refinery, fluidized catalystic cracker (FCC), effluent treatment plants, captive power plants, marine terminal facilities and storage for handling of crude and product exports.

Financial institutions and banks led by the Industrial Development Bank of India (IDBI), ICICI and State Bank of India (SBI) have already sanctioned around Rs 1,000 crore for the project. The project, slated for commissioning in the last quarter of 2001 in Cuddalore, will be the first fully-owned private sector refinery in south India.

The refinery, according to reports, will have the flexibility to process different types of crudes and produce multiple grade products of international specifications. Its major products include liquefied petroleum gas (LPG), motor gasoline (petrol), kerosene, diesel, fuel oil and bitumen.

   

 
 
STATE WANTS TO TAP BSNL FIBRE NETWORK 
 
 
BY PALLAB BHATTACHARYA
 
Calcutta, Feb. 11: 
The state government is in talks with Bharat Sanchar Nigam Ltd (BSNL) to share the latter’s 5000-km optic-fibre network for implementing its e-governance and power transmission plans.

Sources said BSNL has connected 290 blocks in the state through its optic-fibre network and another 42 will be linked shortly. The government will lease the network for carrying out its major businesses on-line. “The network will be primarily used to deal with the huge amount of information related to land and agriculture,” they added.

Chief minister Buddhadeb Bhattacharjee, who has, of late, developed a fascination for computers, is understood to have directed his special secretary Amit Kiran Deb to monitor the project.

Deb has already held talks with BSNL’s top regional brass on sharing the network. Senior officials from WBSEB have taken up the power transmission part with BSNL, sources said.

The state government had earlier planned to set up a similar network through the WBSEB and the cost of the project was estimated to range between Rs 250-300 crore.

While it could not be ascertained whether that plan has been shelved, sources said implementation of the e-governance plans through an existing network will save both time and money.

BSNL also plans to enter WiLL services by March 2001.

   

 
 
SINHA’S FOOD FOR THOUGHT 
 
 
FROM RAJA GHOSHAL
 
New Delhi, Feb. 11: 
It’s budget blues again for the finance minister. With industry chambers, manufacturers’ associations and the like queuing up with their respective wishlists, he may well have to trapeze between conflicting interest groups. And giving him food for thought this time is the processed food industry.

Finance minister Yashwant Sinha is currently hard pressed to conjure up a menu that will satisfy the varied tastes of the Rs 30,000-crore industry.

If soft drinks are given a duty cut then tea stands to lose market share. If packed bhujiyas benefit, then biscuits sulk. While soft drink makers want a cut in their special excise duty (SED), tea traders are wary it may lead to a further decline in tea consumption. “Survey has shown that tea consumption has declined of late, mainly owing to popularity of aerated drinks in urban centres,” said R. S. Jhawar, director Eveready Industries.

Each sector, of course, has its own axe to grind.

The Indian Tea Association (ITA) is upset with the re-imposition of central excise duty at the rate of Rs 2 per kg on bulk tea. Jhawar, who is also chairman, Indian Tea Association, said, “Two years ago, there was zero excise on tea, coffee is still zero excise. The increase in production costs of tea, along with green leaf cess and a steep 53 per cent import duty on packaging equipment is proving detrimental to the industry.”

Another plea of ITA is to increase import duty to the bound rate of 150 per cent, from the present 35 per cent. The tea industry is also concerned about modernising plantations, says A. Monem, vice-president Williamson Magor & Co. Presently, tea companies can deposit 20 per cent of the profit before tax (PBT) with Nabard for modernisation. “The industry wants the modernisation fund to be increased to at least 40 per cent,” says Jhawar, pointing out that 15 per cent of tea bushes are 50 years old.

However, the soft drinks industry is up in arms over the SED which it has to pay. According to a spokesperson of Pepsi, “No other food product attracts SED. The total excise duty of aerated waters is 40 per cent, out of which 16 per cent is the basic excise duty.”

The Indian Soft Drinks Manufacturers Association (ISDMA) states that a 50 per cent increase in the excise burden in recent years has contributed to stagnation of sales to around 6 per cent per annum. Further, the ISDMA said it was committed to pass the benefits of the SED removal fully to the consumer in order to stimulate growth and consequently revenue to the government.

Biscuit makers also want their bag of goodies. The Federation of Biscuit Manufacturers of India has asked the government for exemption of the 16 per cent duty on biscuits in a pre-budget memorandum(2001-02)presented recently.

The Federation resents that at the current level of 16 per cent, biscuits are clubbed with non essential items like pan masala whereas items like coffee and dairy products as also bhujias and namkeens and mixtures are fully exempt from excise duty.

Last year’s budget had a 100 per cent increase in the excise duties for biscuits from 8 to 16 per cent. However, following representations from the Federation, a 50 per cent exemption was granted to biscuits weighing up to 100 gms whose retail price did not exceed Rs 5 per pack.

   

 
 
TELCO-PEUGEOT CAR PLAN GETS SWADESHI HUE 
 
 
FROM SATISH JOHN
 
Mumbai, Feb. 11: 
The joint feasibility study conducted by Tata Engineering and Locomotive Company (Telco) and French car major PSA Peugeot Citroen to develop a mid-size car for the Indian roads is based on the fundamental premise that 80 per cent of the product will be indigenously developed. “In whatever we do, we will ensure our vehicles have a high indigenous content from the initial stages,” a Telco official told The Telegraph.

Earlier, the two companies have agreed to complete the feasibility study to develop a mid-size sedan over the next six months. Telco and PSA Peugeot’s tie-up is purely technical. If the project runs on schedule, the three-boxed sedan will be rolled out by 2003.

PSA Peugeot’s 206 platform is a hatchback version. The French car major is not known to have developed a three-boxed version on a 206 platform, although they have three-boxed versions in their 306 platforms. Ratan Tata, Telco chairman was quoted earlier saying that the proposed collaboration may produce a car priced in the Rs 10 lakh bracket for the mid-size luxury car segment. However, the Telco officials maintained that it is too early to talk about the product and the segment.

For the time being, the two companies have agreed to work together to examine the feasibility of jointly manufacturing a car on a PSA Peugeot Citroen platform in India. “Subject to the feasibility study, the car may also be considered for overseas markets,” Telco had said at the time of the announcement.

A three-boxed model on a hatchback platform seems to be the trend in the global auto market. Ford Motor Company has successfully devised a three-boxed version called the Ford Ikon from its Fiesta model. Ford Ikon which was launched last year had rave reviews and did well in the local market gaining market share for Ford India.

General Motors, too, launched a three-boxed version of its Corsa model in India which was developed from the existing hatchback versions running on the Latin American and European roads.

At present, Telco might find it an expensive proposition to repeat the indigenous Indica miracle, given the cost and time such a project would involve in a fast changing auto industry. It will have to hold hands with another player who has considerable expertise in the field.

For PSA Peugeot Citroen, on the other hand, such a project would give them another opportunity to make an impact in India. Its alliance with the Doshis of Premier Automobiles turned sour forcing them to exit the Indian roads. Meanwhile, the French car major has entered into an arrangement with Maruti to provide engines for its diesel Zen model.

PSA Peugeot Citroen is Europe’s second largest carmaker and would contribute its expertise in developing a newer generation world class passenger car.

   
 

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