CRR cut 50 basis points to 7.5%
Vajpayee finds solace in cold figures
MIP-95 malaise not to spread to other UTI schemes
Audio majors scramble for market pie

Mumbai, May 12: 
The Reserve Bank of India today injected fresh liquidity into the monetary system by lowering the cash reserve ratio (CRR) to 7.5 per cent from the present 8 per cent. The 50 basis points cut, which will take effect from May 19, is expected to release Rs 4,500 crore into the system.

CRR is the cash balance that banks have to compulsorily maintain with the central bank. Once CRR comes down, banks have to maintain less cash with RBI, making more funds available to the industry. RBI uses it more as a safety cushion, injecting or sucking out liquidity from the system as and when required.

Welcoming the RBI move, finance minister Yashwant Sinha said, “I have always been in favour of bringing down lending rates.”

“I think its a good move. The RBI had indicated it might go in for this cut earlier too.”

He, however, warned that the government will keep a watch on the inflation rate which may come under pressure because of the excess money flowing into the system.

The industry naturally welcomed today’s cut and bankers were also not surprised. Today’s reduction is the second within the last three months. On February 16, CRR was reduced by half percentage point from 8.5 per cent to 8 per cent in two stages, which came into effect from fortnights beginning February 24 and March 10.

Bankers were, however, a trifle disappointed that the RBI did not announce a simultaneous cut in the benchmark bank rate which was expected.

Reacting to the cut in CRR, government bonds in the medium and longer terms, attracted fresh buying enquiries and extended overnight gains on continuing market hopes of a bank rate cut, which analysts feel could follow suit. Prices of actively traded bonds in the 8-15 year segment ended with gains of 15-30 paise.

“Market speculation of a bank rate cut has been doing the round since the past fortnight after the Federal Reserve cut interest rates—so the cut in CRR was very much expected,” the dealer said.

Industry happy

Apex trade bodies today hailed RBI’s decision to reduce CRR by 50 basis points to pump in additional money into the market, even while demanding an immediate interest rate cut and increase in government spending.

“We are happy the RBI has invoked a CRR cut which should augur well for the industry, nevertheless this should result in interest rate cut,” Assocham secretary general Jayant Bhuyan said.

The Confederation of Indian Industry (CII) also said this step, in the wake of a slow down, would go a long way in making available funds that will help the industry.

Ficci, in a statement, said the move would help banks to have more lendable resources and ease liquidity in the market.

“It must be ensured that these resources are passed on to the corporate sector so that it can help arrest the industrial slowdown being presently faced by the economy,” it said.

Ficci said it hoped that RBI would consider measures for reducing the cost of borrowings further.

Echoing similar sentiments, CII president Sanjiv Goenka said, “With interest rates being a major cost disadvantage for the Indian industry, a further softening in the medium and long term rates through a cut in the bank rate would provide succour to the industry.”

Fed rate cut

The US Federal Reserve is expected to lower rates at its next meeting on Tuesday. The investors are also looking to see if Friday’s US producer prices and retail sales numbers will back the Fed’s case to cut. Last week news of a surprise plunge in the US payrolls in April pushed Wall Street economists into near agreement that the Fed will cut interest rates by a half point for the fifth time this year.


New Delhi, May 12: 
Statistics, though known to conceal more than they reveal, are every government’s favourite, especially when they show what a good job it is doing, never mind the sceptics. Today, it was the turn of a beleaguered Prime Minister Atal Bihari Vajpayee, facing the flak from friends and foes alike, to find solace in statistics.

At a seminar on national statistical surveys held here today, the Prime Minister patted himself and the government’s statistical service on the back, for discovering that the number of poor has come down by a whopping 10 per cent, though not all were convinced.

And leading the sceptics was C. Rangarajan, Andhra Pradesh governor and chairman of the National Statistical Commission, who made it clear he had doubts about the quality of statistical data and stressed the need for an “independent statistical authority free from political interference.”

Vajpayee claimed that National Sample Surveys showed poverty had come down from 36 per cent in 1993-94 to 26.1 per cent in 1999-2000. Though he put up a stout defence “I am not saying this because my government wants to take credit for this,” he also added that this proves “reforms are helping the country and there is no need to question the basic direction.”

The BJP government has been under attack from hardliners within its own ranks, who feel its programme of privatisation of profitable public sector units, opening up imports and allowing higher foreign direct investment, could prove disastrous. The Prime Minister’s statement seems targeted at silencing these critics.

However, with top economists like Rangarajan, a former governor of the Reserve Bank, casting aspersions on the quality of statistical data being brought out by government organisations, Vajpayee’s claims may actually fall flat on the face.

Several top economists have in the past complained about the methodology used by the NSS to arrive at the conclusion of a massive fall in poverty. Economists like V. Panchmukhi and B. B. Bhattacharya have also been questioning several policy decisions, such as the lifting of FDI caps in certain sectors, being taken by the government in the name of reforms.

Possibly to counter all this, Vajpayee did concede that “there is a need to fine-tune our policies and correct mistakes where they are apparent.”

Vajpayee also admitted the urgent need to strengthen the implementation of rural development programmes for creating more opportunities for employment and income generation.

The NSS survey shows that informal non-agricultural enterprises provide employment to about 94 million people in the country, which is much more than the employment potential in the organised sector. Yet, government planning and budgetary allocations have been disregarding this sector.

“The need of the hour is to further strengthen the national consensus on reforms for building a strong India,” the Prime Minister said.

Trying to prove that such a consensus did exist, Vajpayee added: “The process of economic reforms was initiated by a Congress government. It was later carried forward by two United Front governments. In different ways, state governments ruled by various political parties are also pursuing economic reforms on their own.”


Mumbai, May 12: 
Under considerable flak for the paltry 5 per cent returns in 2001-02 on its Monthly Income Plan-95 (MIP-95), the beleaguered Unit Trust of India (UTI) has said the 5 per cent annual return declared for this year is a one-time affair and will not affect other schemes.

S. S. Nayak, chief general manager at UTI, said the scheme recorded an average return of 12.47 per cent since its inception in 1995-96. In fact, the NAV for the MIP-95 cumulative scheme is at Rs 17.37, he added.

He added that while this particular scheme happens to have under-performed, the same is not true of all the MIP schemes.

While UTI officials were not willing to attribute the reasons for the dismal performance of MIP-95 (a scheme with a seven-year tenure), mutual fund circles attribute the downfall to a poor asset quality of the fund’s debt portfolio, especially those accumulated from the steel industry.

Sources blamed the fund’s large exposure to debt securities of steel companies, especially public sector steel majors like Steel Authority of India and Rashtriya Ispat, and their delay in making interest payments, as having put a huge burden on the scheme. Added to this are the private steel companies, who are faring worse than the PSUs.

But though UTI officials insist MIP-95 is an exception, experts in the mutual fund industry feel otherwise. They expect the late 1997-98 MIPs to suffer the same fate and fear the latter may also have net asset values lower than their face value.

Meanwhile, UTI has registered sales of Rs 12,863 crore for the period April 2000-April 2001, as against repurchases of Rs 9,996 crore. The net funds it has added to its investible corpus is thus Rs 2,867 crore.

The Unit Linked Insurance Plan (ULIP) is slowly inching close to its flagship scheme — the Unit Scheme 1964 — in terms of popularity.

For the period under review, the fund has collected Rs 4,300 crore under US-64, while ULIP was close behind at Rs 3,700 crore.


New Delhi, May 12: 
Though the market for audio products has shrunk by 7 per cent in the last financial year compared with its 15 per cent growth in the previous fiscal, the major players are scrambling for the best possible share of the shrinking market.

According to the ORG GFK survey, Sony remains number one with a 31.8 per cent market share followed by Philips with 25 per cent share, who has taken over Aiwa’s position. Aiwa slipped to the third position with 21 per cent market share.

T Itagaki, general manager marketing, Sony India said: “The growth can be attributed to our international product line and attractive pricing. Hi-Fi CD system is responsible for the performance. The range of personal audio and walkman have also done quite well.”

While Aiwa had a 49.7 per cent market share in the audio VCD range in October last, it has gone down to 27.2 per cent in April.. While Sony’s market share shrunk from 28.3 per cent to 25.7 per cent. Philips, on the other hand, gained market share from a meagre 3.2 per cent to a whopping 26.3 per cent.


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