Money matters need attention
Core sector woes weigh heavy on industry
Tatas, Hindujas & Air France vie for A-I stake
Farms wilt, fall in grain output seen
Sensex plunges 140 points
Many ills bedevil progress of social sector
Growth slide worries chambers
Core sector hungers for long-term funds
Enough room for further cut in interest rates
Foreign Exchange, Bullion, Stock Indices

 
 
MONEY MATTERS NEED ATTENTION 
 
 
FROM OUR SPECIAL CORRESPONDENT
 
New Delhi, Feb. 23: 
The Economic Survey for 2000-01 offers the government a piece of advice, often ignored: Get more people to pay taxes and make it tougher for those who don’t.

This survey, like all others in the past, says public finances are bedevilled by tax statutes burdened with a plethora of exemptions, allowances, deductions and incentives. So, expect the budget, only three days away, to wield the axe.

The dominant theme this year is the need to rework indirect taxes, folding them up in a nation-wide value-added tax (VAT). In addition, the average rate of customs duties must be reduced and the tax base widened by including more services.

“The tax base remains narrow and porous. Direct tax laws are saddled with myriad exemptions which hit tax administration,” the finance ministry-authored survey states.

Rates of customs duty remain high vis a vis those prevailing in east-Asian countries. “Reductions are essential to pressurise industry and trade, to boost efficiency and sharpen the economy’s competitive edge,” the survey states.

The survey points out services, one the fastest growing sectors, remain largely untaxed. “To raise the ratio of taxes to GDP, it is imperative to widen the scope of service tax.”

The excise structure has been revamped, but the survey says more needs to be done to make it simpler and tighter. In the final analysis, says the survey, the Cenvat system will be woven into nation-wide VAT, which will also subsume state-level levies.

The observations come at a time when the combined fiscal deficit of the Centre and states stands at a staggering 10 per cent of the GDP, rising 1 percentage point in the last year.

Government loans account for 60 per cent of the national income. A debt-to-GDP ratio of over 50 per cent is considered alarming enough. At current levels, the country runs the risk having its sovereign credit rating downgraded. The fact that Centre’s borrowings have been kept within the limits set in the last budget will not help matters.

The government has been warned that high public debt means higher interest rates — something that clashes with its avowed goal of bringing them close to global levels. High cost of money ‘crowds out’ private borrowers, massive interest payments by a revenue-starved government chokes public investment and expenditure on social services.

   

 
 
CORE SECTOR WOES WEIGH HEAVY ON INDUSTRY 
 
 
FROM OUR CORRESPONDENT
 
New Delhi, Feb. 23: 
The survey’s assessment of the industry does not read like a litany of lost hopes, but does not mince words when it asks Corporate India to grow up and cope with the rigours of global competition; the government cannot build permanent tax shelters. “It must be an efficient and competitive, able to stand on its own in the face of foreign competition.”

On balance, things are not hunk-dory in the factories, workshops, power stations and mines. Held back by the slump in manufacturing and electricity, the industry grew at the rate of 5.7 per cent in the first nine months of 2000-01 (April-December) against 6.4 per cent in the same period last year.

To reverse the downtrend, infrastructure constraints in power, transport and telecommunications have to be relaxed. “Bureaucratic grip has to be loosened and steps taken to ensure that financial markets are competitive, and that capital is available at competitive rates,” the survey states.

The slowdown is blamed on slack demand for intermediate goods, poor infrastructure growth and high interest rates. Other factors responsible for the troubles are high oil prices and existence of excess capacity in some sectors.

“Lower growth rates in capital and intermediate goods indicate a lack confidence in taking investment decisions,” it adds.

   

 
 
TATAS, HINDUJAS & AIR FRANCE VIE FOR A-I STAKE 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, Feb. 23: 
The Tata group, the country’s largest business conglomerate, took another decisive step towards fulfiling its dream to snap up Air-India (A-I) by filing a technical bid for a stake in the national flag carrier. However, in a surprise move, the group said it will not be vying for the equity that the government offloads in Indian Airlines (IA).

“We have put in our bids for Air-India but we are not bidding for Indian Airlines,” a Tata group spokesman said. Asked why they had backed out from bidding for the domestic carrier, the spokesman said he was not aware of the reasons.

The Tatas’ decision to leave the fray has turned the process into a two-horse race between the Hinduja brothers and the Dhoots-promoted consumer electronics major Videocon International. The consumer electronics group did not disclose the identity of its technical partner, citing a non-disclosure clause.

The government’s move to privatise the state-owned carriers evoked a lukewarm response with few bidders throwing their hats into the ring today, the deadline for submission of bids.

Apart from Tata-Singapore Airlines and the Hindujas-Lufthansa consulting group combine, Air-France and Atlanta based Delta Airlines are the other key suitors for A-I. Delta-Air France has not said who its Indian partner will be, though it is believed to be in talks with the Calcutta-based ITC. The London-based steel baron L N Mittal has withdrawn from the race.

The government will divest 40 percent in the long-haul Air-India and 26 per cent in Indian Airlines as part of its move to privatise them. Foreign airlines can only pick up 26 per cent of the 40 per cent placed on the block. They require an Indian partner to pick up the remaining 14 per cent.

The government has fixed a minimum net worth of Rs 1,000 crore as a condition for those who bid for a stake in the two airlines. Preliminary details of business plans and consortium arrangements were submitted in January. The process itself is likely to be completed by the first half of this year.

The Hindujas’ chances of bagging a stake in Indian Airlines was boosted by a report on Friday, which said they had teamed up with Lufthansa Consulting group. Their bid was made by Ashok Leyland, the Chennai-based heavy commercial vehicle major in which the brothers hold a controlling stake.

Lufthansa has some experience in the Indian aviation industry, having been equity partners with the Modis in Modiluft.

Except for the three small players which included the Indian Pilots Guild, all majors players —Tata-SIA, Videocon, Hindujas-Lufthansa, Delta-Air France and L. N. Mittal — have been shortlisted.

Air-India itself is not sitting pretty. It turned up a net loss of Rs 75 crore last fiscal, the fifth consecutive year it did so. It has 26 ageing planes, most of which need to be replaced. More important, it is over-staffed.

   

 
 
FARMS WILT, FALL IN GRAIN OUTPUT SEEN 
 
 
FROM OUR CORRESPONDENT
 
New Delhi, Feb. 23: 
The poor performance of agriculture, the mainstay of the economy because of its linkages with other sectors, has been responsible in large part for the current slowdown, says the Economic Survey for 2000-01.

What is disheartening is that prospects for the year ahead are not too bright either. Foodgrain output is expected to decline to 199 million tonnes in 2000-01 against a record 208 million tonnes in 1999-2000.

The survey says the seeds of reform must be sown now if the government wants to achieve a growth rate above 4 per cent in agriculture by 2005 — a goal enshrined in last July’s National Agriculture Policy. The two key prescriptions: privatisation and price protection for farmers in the post-QR regime.

The survey calls for commodity-specific strategies to protect farmers once the quantitative restrictions on imports are lifted. Exports must be encouraged with incentives. It says private sector investment should be invited in the areas of agricultural research, human resource development, post-harvest management and marketing.

   

 
 
SENSEX PLUNGES 140 POINTS 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, Feb. 23: 
The gloomy picture of the economy painted by the pre-budget survey took a heavy toll on share values at the BSE today, as a fresh wave of across-the-board selling dashed all hopes of a pre-budget rally.

Dealers reveal that today’s trading session saw long positions being squared up and operators turning cautious before the budget. “This is an exceptional year, with the sensex beaten to the ground as there is nothing much to look forward to,” a dealer lamented.

Dhiraj Sachdev of HDFC Bank rued, “The customary pre-budget rally is not on the cards this year.”

Today’s 140.39-point fall saw the sensex close at 4122.16 on the last day of the settlement on the Bombay Stock Exchange (BSE).

With only three trading sessions to go before budget day, dealers say every bull rally will be taken as a profit opportunity.

The Economic Survey for the year 2000-01 warned of a continued slowdown in growth rate in the coming fiscal, which may be further hit as higher oil prices are likely to widen the current account deficit.

The BSE-30 share sensitive index opened the day at 4261.81 from yesterday’s close of 4262.55 and touched a high of 4277.36. Distress selling by operators pulled down the sensex to a low of 4118.09 before closing at 4122.16, recording a loss of 3.29 per cent. The BSE-100 also tumbled 82.25 points to 2083.91 from the previous close of 2166.16.

All 30 index-based shares ended in negative territory, old economy stocks bearing the brunt. New economy counters also began to wilt under selling pressure after resuming on a barely steady note, following a four-day losing streak in the Nasdaq composite index which fell by another 24 points last night.

   

 
 
MANY ILLS BEDEVIL PROGRESS OF SOCIAL SECTOR 
 
 
FROM OUR SPECIAL CORRESPONDENT
 
New Delhi, Feb. 23: 
There is more bad news than good about the social sector, with key indicators reflecting a marked slide in the Economic Survey 2000-01.

Take the growth rates of employment in the organised sector, for instance. Growth rate in the organised sector has dipped to 0.04, from 1.44 per cent in 1991.

The gender-based health profile also yields some grim facts. While life expectancy at birth for women has improved from 44.7 in 1971 to 60.9 in 1994, progress in other areas has been frighteningly slow. The maternal mortality rate per 100,000 live births have gone down from 468 in 1980 to 408 in 1997. The child mortality rate has also gone down by more than half for males and less than half for females in nearly 30 years. Infant mortality rate for females is still high — 72.2 per 100,000 in 1997.

While the health indicators have improved in the last 30 years, India rates poorly when equated with international statistics. Compared with an 80.3 life expectancy at birth in high human development areas, the Indian average of 60.9 is low. What is worse, India trails Sri Lanka, China, Indonesia and Pakistan in medium human development areas.

The sex ratio, skewed against women for some time now, has also been dipping steadily. Compared with 930 females in 1971, in 1991 the numbers have declined to 927 per 1000 men.

The work participation rate for women also continues to be low.. As the survey admits, “A significant part of the contribution of a large section of society, especially women, towards the economy remains unrecognised in quantitative terms, or at best undervalued, because of the restricted definition of economic activity in national income accounting.”

Some indicators have also registered a slight improvement. For instance, literacy is on the rise, as is the supply of drinking water. Initiatives have been taken for the care of the elderly.

The central government expenditure (Plan and non-Plan) on social services has also gone up over time.

   

 
 
GROWTH SLIDE WORRIES CHAMBERS 
 
 
FROM OUR CORRESPONDENT
 
New Delhi, Feb. 23: 
Industry chambers have expressed concern on the decline in the overall growth rate, which is expected to go down to 6 per cent for 2000-01 as against 6.4 per cent in the preceding year.

The chambers are keen on a growth-oriented budget that will ensure adequate and affordable finances for industry.

The Federation of Indian Chambers of Commerce and Industry (Ficci), while expressing its concern over a substantial decline in the manufacturing, infrastructure, service and capital market sectors, felt the growth rate of gross domestic capital formation in the public and private sector was the silver lining in an otherwise gloomy economic survey.

Ficci chairman Chirayu R. Amin has stated that an array of measures is necessary to push up the overall growth rate.

Commenting on the improvement in real gross domestic capital formation to 9.4 per cent in 1999-2000 from 2.3 per cent in 1998-99 due to a sharp rise in private and public sector investments, Amin pointed out the tempo of fresh investments would have to be raised, which he added, will be the primary task before the finance minister.

“The country is in a singularly fortunate situation to initiate some bold measures for hastening growth and development,” Amin said, adding that exports were surging and forex reserves were at a historic high.

Confederation of Indian Industry (CII) president Arun Bharat Ram expressed particular concern over the second consecutive negative growth year for agriculture and the industrial production slowdown to 5.7 per cent in April-December 2000.

He has listed stepping up the savings rate, attracting foreign direct investment in infrastructure and privatisation as a means to generate additional revenues and revive the economy.

Assocham president Raghu Mody, while expressing his concern over the slowdown of growth in GDP and decline in services said, “India being one of the fastest growing economies in the world is no consolation given that both services and industrial growth rates have declined.”

Planning Commission member Montek Singh Ahluwalia said that primary emphasis needs to be laid on the infrastructure sector, if under the present circumstances India wants to achieve the ambitious 9 per cent economic growth that it has set for itself.

Economist Anil Sharma feels that with rising inflation and falling growth, subsidies need to reduced, especially in the agriculture sector.

Echoing his view was specialist on economic affairs, Dalbir Singh Vadera, who pointed out that reduction of subsidies in food and fertiliser is of prime importance to achieve economic growth.

Indian Chamber of Commerce president C. K. Dhanuka said considering the survey’s bleak outlook, the finance minister has the unenviable task of injecting the ‘feel-good factor’ back into the economy.

   

 
 
CORE SECTOR HUNGERS FOR LONG-TERM FUNDS 
 
 
FROM OUR CORRESPONDENT
 
New Delhi, Feb. 23: 
The Economic Survey for 2000-01 says more long-term finance must be pumped into power, telecom, rail, roads, ports and other infrastructure projects if the country is to attain higher levels of economic growth.

“The demand for infrastructure services continues to outpace supply. Suitable reforms in insurance, pension and provident funds will help channel funds into infrastructure projects,” it states.

The rise in investment must be accompanied by technology-upgradation initiatives to improve the quality of services. A comprehensive and uniform approach, in addition to greater autonomy in decision making and financial matters, will foster effective regulation in the infrastructure sector. According to the survey, power, cement, railways, and communications have recorded a decline in growth. It has warned that falling output in these areas will pose serious constraints to faster industrial and overall economic growth. They were coal and petroleum, which have seen a higher output.

Power

The power sector, critical to economic development, will not attract adequate resources unless the key issue about the commercial viability of state electricity boards is addressed first. Also, there is a need to change the way tariffs are determined, and develop a demand-forecasting model.

Telecom

The survey says opening up internet telephony, facilitating convergence and putting in place a unified licence regime to expand telecom services and to bolster growth in the sector.

Other areas which require immediate attention are tariff re-balancing (cost-based prices), ensuring transparency in the way subsidies are handed out and greater operational efficiency.

More important, there is an indication that long-distance call rates will come down further and phone rentals will be increased marginally. “The fixed telephony is being subsidised. With an emphasis on cost-based prices and emphasis on transparency of subsidies, the survey has indicated that government must ask the regulator to rework the monthly rentals and long-distance tariff rates,” DoT said.

Roads, ports and rail

The survey has pointed out that the lack of policy and regulatory framework — the key to addressing the complexities of private-public partnership — has inhibited the flow of investment in roads.

It has suggested the need to bundle gas and repair stations, telephone booths, motels, rest room facilities with highway development projects to attract big-ticket investments.

   

 
 
ENOUGH ROOM FOR FURTHER CUT IN INTEREST RATES 
 
 
FROM OUR SPECIAL CORRESPONDENT
 
New Delhi, Feb. 23: 
Bank interest rates could well be headed for another round of southward movement while interest paid out on small savings look almost certain to be cut.

The Economic Survey for 2000-2001, which normally reveals the government think-tank’s policy prescriptions for the year ahead, states there is still a need for “reduction in both interest and non-interest costs by banks and financial institutions”—an obvious signal to the Reserve Bank of India, the country’s central banker, on what the government would like to see it do.

The survey, which was placed in Parliament today, also makes it clear that the government needs to cut interest rates on pension and provident funds as high rates paid out on these borrowings are adding to the government’s fiscal problems.

Interest rates on these are fixed by the finance ministry itself and media leaks on the budget have for some time been indicating such a decision.

Only last week banks cut their lending rates after RBI reduced the bank rate and the cash reserve ratio—the first one being the rate it charges banks for borrowing money from it and the second is the amount of money that banks have to compulsorily keep—by half a percentage point each.

This move by itself exerted pressure on the government to reduce interest on small savings which include public provident fund, post office savings and national savings certificates.

The survey also recommends that interest on small savings be benchmarked against comparable rates charged by banks.

A further cut in bank rate would inevitably see more southward movement in the deposit rates charged by both banks and government run small savings schemes, especially as the Survey seems to indicate that a definite correlation is likely to established between rates paid out on the two.

The government’s advice to banks that they cut non-interest costs seems to be a reminder to them of the need to reduce the huge burden of bad debts they are saddled with.

Media leaks on the budget also have it the government will bring in foreclosure laws to wind up and sell off assets of companies which have been perennially defaulting on their obligations to creditors, mostly banks and financial institutions.

The step is obviously needed as 14 per cent of public sector banks’ gross advances are locked up in bad debts. Three state run banks are in precarious position due to the erosion of their capital by bad debts and will probably have to be bailed out by the Union government.

   

 
 
FOREIGN EXCHANGE, BULLION, STOCK INDICES 
 
 
 
 

Foreign Exchange

US $1	Rs. 46.59	HK $1	Rs. 5.90*
UK £1	Rs. 67.31	SW Fr 1	Rs. 27.15*
Euro	Rs. 42.13	Sing $1	Rs. 26.35*
Yen 100	Rs.39.98	Aus $1	Rs. 24.00*
*SBI TC buying rates; others are forex market closing rates

Bullion

Calcutta			Bombay

Gold Std (10gm)	Rs. 4375	Gold Std (10 gm)Rs.4325
Gold 22 carat	Rs. 4130	Gold 22 carat	Rs.4000
Silver bar (Kg)	Rs. 7375	Silver (Kg)	Rs.7440
Silver portion	Rs. 7475	Silver portion	Rs.7445

Stock Indices

Sensex	 	4122.16		-140.39
BSE-100	 	2083.91		-82.25
S&P CNX Nifty	1320.45		-35.65
Calcutta	130.08		-3.26
Skindia GDR	719.55		-10.41
   
 

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