UTI privatisation voted down
Graded auto levies to blunt WTO blow
Oil majors team up to face life after APM
Corp Bank ties up with New India Assurance
Tax respite for NBFCs likely
Tea Board weighs move to launch futures trading
Topline woes shift focus on profit management
Ministry upgrades drug rules
Foreign Exchange, Bullion, Stock Indices

 
 
UTI PRIVATISATION VOTED DOWN 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, Dec. 20: 
The board of Unit Trust of India (UTI) was today told that there was a groundswell of public opinion against privatisation — a recommendation made by the Y. H. Malegam committee.

The mutual fund board weighed the recommendation here today at a meeting that ended with a decision to convey the sentiment against privatisation to the government over the next couple of days, general manager K. Madhava Kumar told reporters.

A spokesperson said feedback from stakeholders — investors, employees agents — suggested they were against a complete repeal of the UTI Act that would mean handing the Big Daddy of mutual funds to private control. UTI chairman M. Damodaran had said immediately after the Malegam report was submitted that the government and UTI were not obliged to accept its proposals. However, other points suggested by the panel — ideas to improve investment procedures, valuation and provisioning norms — have been accepted.

The board meeting also discussed ways to make US-64 net asset value based (NAV) from January 2, the date the mutual fund says it remains committed to. Simultaneous sale and repurchase of the flagship scheme, temporarily shut from July this year, will be resumed then.

Prickly issues raised by the Tarapore Committee did not figure today. The spokesperson said the board has formulated its views on the subject and would apprise the government about how it plans to deal with them.

The panel has found glaring deficiencies in the way UTI invested in unlisted securities, companies and even in the manner in which it divested stakes in subsidiaries. The meeting devoted considerable attention to the strategy to be adopted once it opens the sale and repurchase window for US-64, which was quoted at Rs 8.25 on the National Stock Exchange today, after hitting a low of Rs 8.10.

The UTI board will decide on the modalities of arriving at the sale and repurchase price for the scheme.

However, highly placed sources said a decision to allow sale and repurchase is almost certain. This will be done along side the special window created for small investors selling up to 3000 units.

US-64’s real estate assets were recently shifted to the development reserve fund, which yielded the scheme almost Rs 750 crore — an amount that was invested in double AA debentures.

For UTI, today’s meeting was probably the last before it goes public with the flagship scheme, whose net asset value (NAV) is supposed to be disclosed to investors from next month.

It is learnt that while Sebi has allowed mutual funds to maintain a gap of 7 per cent between its sale and repurchase prices, UTI is expected to opt for a realistic 3-to-3.5 percent gap for arriving at the sales and repurchase price of US-64. The change in perception at UTI is by virtue of the restructuring of the flagship scheme that saw the portfolio witnessing a drastic overhaul.

The decision to suspend all sales and repurchases of US-64 had not gone down well with its legions of small investors that swore by a scheme they thought never let them down.

   

 
 
GRADED AUTO LEVIES TO BLUNT WTO BLOW 
 
 
FROM JAYANTA ROY CHOWDHURY
 
New Delhi, Dec. 20: 
The government plans to use a differential tariff shield as a roundabout way to perpetuate some of the principles that underpinned its nine-year-old automobile policy which it must now recast after an adverse ruling by the dispute settlement body of the World Trade Organisation (WTO).

In the light of the WTO ruling, the government will now have to abandon some of the provisions in the auto policy that had laid down tough entry barriers for foreign automakers by setting a minimum investment limit of $ 50 million. The car makers were also required to localise content to the extent of 50 per cent in three years and 70 per cent in five years of starting production.

The government intends to use a system of graduated customs duties to deter low-cost “garage-style” operations that will depend on the import of completely knocked down or semi-knocked down kits. The graded duties will impose the lowest levies on components and the highest on completely built units (CBUs).

The US and the European Union had challenged the auto policy provisions before the WTO and the ruling has now gone in their favour.

However, the ruling, which strikes down India’s investment norms for foreign car companies, does not impact India’s policy of charging differential customs duty on imported components, completely knocked down kits, semi-knocked down kits and completely built units.

The Centre believes that its graded customs duty policy will still force automakers to indigenise to the maximum extent possible, giving an advantage to those car companies that have invested heavily in local production against those who plan to set up assembly lines only.

“We will now have to concentrate on the tariff lines. We will be playing around within the bound rates (duty ceilings set by the WTO for a wide range of products) so as to make it even costlier for a carmaker to import kits or even key components. Our whole aim will be to see to it that an automobile company is forced to make at least 60-70 per cent of its components by value here itself because of the differential tariff structure,” officials said.

The government will, however, be redrafting its new automobile policy which had nearly finalised in light of the World Trade Organisation’s dispute settlement panel’s report.

The department of heavy industry will no longer be able to hold down the existing car companies to fulfil the pledges on localised content that they made in the memoranda of understanding they signed with the government.    


 
 
OIL MAJORS TEAM UP TO FACE LIFE AFTER APM 
 
 
BY PALLAB BHATTACHARYA
 
Calcutta, Dec. 20: 
Public sector oil companies are teaming up to face challenges after the administered price mechanism (APM) is withdrawn in April 2002.

Indian Oil Corporation (IOC), IBP Ltd, Bharat Petroleum (BPCL) and Hindustan Petroleum (HPCL) have decided to sign a production-sharing pact with an eye on the APM scenario. Private sector refineries like Reliance Petroleum and Essar Petroleum, however, have been kept outside the alliance.

“Although the deregulation issue has been much talked about, there is still a cloud of uncertainty surrounding it. Hence, the product-sharing agreement will be mutually beneficial for all the oil PSUs,” they added.

Sources said the PSU oil majors have, in principle, taken a decision to continue the present product-sharing arrangement in order to avoid any sudden short fall in a particular region.

Currently, IOC produces about 38 million tonnes of refined oil, while BPCL and HPCL produce 18 and 13 million tonnes each. IBP does not have any refinery. On the other hand, Reliance’s Jamnagar refinery has a 27-million capacity that will be expanded to 35 million tonnes.

The total oil demand in the country remains at 100 million tonnes now, and is growing at an annual rate of 7 per cent. Sources said the demand will grow phenomenally in the next 10 years and India will need increased refining capacity.

They observed the arrangement is likely to continue even in the long term, but added that the divestment spectre looming large over the PSUs may upset it.

While IBP is already on the disinvestment agenda, BPCL and HPCL are believed to be coming out from the public sector fold soon with the government planning to offload its stake in the two next year. In such an event, the product-sharing agreement will have no relevance, they said.

Meanwhile, IOC is planning to put on hold its capacity expansion projects which would involve over Rs 13,500 crore. Sources said all oil companies are waiting to see what deregulation brings. Only after the market settles down in the post-April scenario, can investment decisions be taken up. “This is the time to strengthen the marketing network and that is what every oil PSU is doing.”

   

 
 
CORP BANK TIES UP WITH NEW INDIA ASSURANCE 
 
 
OUR BUREAUX
 
Dec. 20: 
The Mangalore-based Corporation Bank today entered into a strategic alliance with New India Assurance Co Ltd under which the bank will act as the corporate agent of the latter. Further, the bank will consider letting New India Assurance policy holders use its ATMs for paying premium.

This is the second such alliance struck by the bank with an insurance major, this time in the general insurance segment. Earlier this year, the bank entered into an agreement with Life Insurance Corporation, following which the latter acquired an equity stake in the bank.

Cherian Verghese, chairman and managing director of Corporation Bank, said the operation of the corporate agency will be as per the provisions of the IRDA Regulations 2000.

According to a memorandum of understanding between the two, New India Assurance policy holders will be able to pay premia through the bank’s ATMs apart from receiving payment for their claims.

On its part, the insurance major will consider routing securities through Corp Bank Securities Ltd.

It will also consider utilising the bank’s payment processing centres for making payments and utilising the latter’s facilities for collection of interest and dividend on securities/shares.

Meanwhile, the private-sector Bank of Rajasthan is contemplating an entry into the insurance business, beginning with distribution of life and non-life products, apart from keeping options open for merging any south Indian bank with it.

It is already in talks with LIC and Birla Sun Life for life insurance and Tata-AIG and Bajaj Allianz for non-life insurance.

ICICI Prudential Life Insurance Co Ltd, said it plans to infuse Rs 80 crore in two tranches in the next six months.

The fresh infusion of funds will facilitate the aggressive growth strategy chalked out by the company.

   

 
 
TAX RESPITE FOR NBFCS LIKELY 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, Dec. 20: 
The Reserve Bank of India (RBI) is considering a proposal to widen the definition of hire-purchase companies, to cover those that extend loans. The move will the give non-banking finance companies (NBFCs) a breather from the 5 per cent service tax clamped by the government.

The difference between loan assets and lease-and-hire purchase assets is that in case of the former, the ownership of an asset for which the loan is taken lies with the borrower. However, in case of lease and hire purchase, the ownership lies with the financier.

Recently, NBFCs began to cry foul over the 5 per cent service tax levied on the interest component on lease-and-hire purchase transactions. Apart from the levy, the main grouse of the NBFCs was that loan assets were exempted from the ambit of this service tax and this worked out to the advantage of the banking sector vis-a-vis the NBFCs.

According to Mahesh Thakkar, special executive officer, Association of Leasing and Financial Service Companies, even if an NBFC were to give more prominence to loan assets and include it within their overall asset portfolio, they are at a disadvantage. This is because as per the current RBI regulations, NBFCs must have at least 60 per cent of their assets in lease and hire purchase categories. Loan assets are not included in this category. NBFCs that meet this stipulation are permitted to borrow four times their net-owned funds.

“The RBI is now widening the definition of hire and lease purchase companies and is considering a proposal to include loan assets apart from hire-and-lease purchase assets,” sources averred. Earlier, the government had widened the scope of the service tax and brought services such as financial leasing, hire purchase apart from others such as credit card, merchant banking and forex broking under its ambit.

Following this, the NBFCs had urged the government that the tax be levied on management fees or the service components and not on the interest or principal segments, as in the case of latter, loans would become more costlier. Though this issue has been challenged in the courts, NBFCs say industry would be hit if the tax were to be applicable as the economic slump has resulted in a decline in disbursements.

   

 
 
TEA BOARD WEIGHS MOVE TO LAUNCH FUTURES TRADING 
 
 
BY SUTANUKA GHOSAL
 
Calcutta, Dec. 20: 
With the Forward Markets Commission (FMC) allowing futures trading in tea, the Tea Board of India has appointed international consultant AF Ferguson to carry out a feasibility study on tea futures and come up with suggestions on its implementation.

Speaking to The Telegraph, Tea Board chairman N. K. Das said, “While we do not feel that futures trading in tea is feasible at this point of time, we have appointed a consultant to review the issue. We are waiting for their recommendations.” He further added that FMC has invited proposals from parties interested in setting up exchanges for tea futures. “The proposal will come to us and we have to examine it before a final nod is given,” he said.

Presently, futures trading is permitted in pepper, turmeric, molasses, castor seed, hessian, jute sacking, cotton, potato, castor oil, soyabean, soyabean oil and cake, coffee and mustard seed, groundnut, sunflower, copra, cotton seed and its oil and cakes, kapas, RBD palmolein, sugar, rice bran and its oil and cakes, and sesame seeds, under the auspices of 17 commodity exchanges across the country. Tea forms the latest addition to this list.

Earlier, the Indian Institute of Plantation Management, Bangalore, after a detailed study, had recommended futures trading in tea, but it was finally rejected since industry found the proposition unviable. Even now, industry and the auction houses are not very amenable to the idea. Experts say a production of over 850 million kgs makes it difficult to start commodity trading in tea, as the bulk is consumed in the domestic market. Also, a plethora of grades make it impossible to arrive at a standardised format required for future trading.

Senior officials of Carrit Moran, one of the oldest auction houses in the city said, “The large number of grades in various tea categories make it practically impossible to go in for forward contracts. Futures trading is entered into for a standard variety known as the ‘basis variety,’ with permission to deliver other identified varieties known as tenderable varieties. This is impossible in tea.”

Futures contracts perform two important functions of price discovery and price risk management, with reference to the given commodity.

It is useful to the producer because he can get an idea of the price likely to prevail at a future point of time and therefore can decide on which commodity suits him best between various competing commodities. It enables the consumer in that he gets an idea of the price at which the commodity would be available at a future point of time.

Futures trading is also useful to exporters as it provides an advance indication of the prices likely to prevail and thereby help them quote a realistic price. The futures market enables them to hedge risks by securing export contracts.

   

 
 
TOPLINE WOES SHIFT FOCUS ON PROFIT MANAGEMENT 
 
 
FROM OUR CORRESPONDENT
 
New Delhi, Dec. 20: 
Weak demand and a general slowdown in the economy has discouraged industry from planning any investment in new units, with three out of every business units planning to slash their workforce further in the remaining part of this fiscal.

So, even if the government continues to remain blasé about the global economic slowdown and is loathe to scale back its growth forecasts, nearly two-thirds of India Inc believes that they will be badly hit in the next six months.

The 56th Business Outlook Survey for October 2001 to March 2002 carried out by the Confederation of Indian Industry (CII) has revealed that while 60 per cent of the respondents have decided not to stump up cash this year; the remaining 40 per cent plans to invest in only their existing units.

The survey covers responses from 215 member companies across a spectrum of industry groups, both in the public and private sectors.

With toplines going nowhere in the wake of compressed demand in the economy, the corporate sector has been increasingly focussing on “managing bottom lines” by aggressively cutting down on costs, the survey said.

While 21 per cent expect their capacity utilisation to be below 50 per cent in the coming months, 79 per cent of the respondents said it would be above the half-way mark. The respondents have blamed the poor situation in the economy squarely on inadequate infrastructure, with the power situation being the biggest culprit.

While 64 per cent of the respondents were dissatisfied with the poor power situation as compared with 41 per cent in the last survey, the dissatisfaction in the case of roads was up from 38 per cent earlier to 46 per cent now.

The percentage of respondents unsatisfied with the telecom infrastructure was 19 per cent with 15 per cent quoting railways as the major bottleneck.

“Power seems to be the single biggest cause of dissatisfaction in the corporate sector -- heightened perhaps by the current phase of slowdown in the economy. Nevertheless, successive surveys have revealed that the introduction of competition has resulted in higher levels of satisfaction in the services provided by the telecom sector,” the CII study said.

With almost half the respondents blaming the poor performance to the global slowdown in the last six months, almost 63 per cent expect to be affected in the coming six months.

The other limiting factors to output identified by the respondents are lack of working capital finance (23 per cent), political instability (18 per cent), current economic policies (49 per cent) and existing plant capacity (7 per cent).

   

 
 
MINISTRY UPGRADES DRUG RULES 
 
 
FROM OUR CORRESPONDENT
 
New Delhi, Dec. 20: 
The Schedule M to the Drugs and Cosmetics Rules 1945, has been amended by the Union health ministry to upgrade manufacturing practices for drugs and pharmaceuticals.

The amendment is a progressive mechanism to harmonise the production of drugs and pharmaceuticals and to meet the requirements of international guidelines as recommended by WHO, an official release said today.

The revised guidelines incorporates specific requirements for production of different pharmaceutical dosage forms that include IV fluids, ophthalmic preparations, solid dosages, formulations (tablets and capsules) and bulk drugs, it said.

The amended rules come into force with immediate effect, but these rules shall not apply to the manufacturers who are licensed to manufacture drugs up to December 2003.

Schedule M lays down specific requirements for premises, plant and equipment for the manufacture of drugs.

   

 
 
FOREIGN EXCHANGE, BULLION, STOCK INDICES 
 
 
 
 

Foreign Exchange

US $1	Rs. 47.80	HK $1	Rs.  6.05*
UK £1	Rs. 69.04	SW Fr 1	Rs. 28.70*
Euro	Rs. 42.92	Sing $1	Rs. 25.70*
Yen 100	Rs. 37.31	Aus $1	Rs. 24.05*
*SBI TC buying rates; others are forex market closing rates

Bullion

Calcutta			Bombay

Gold Std (10gm)	Rs. 4635	Gold Std (10 gm)Rs. 4570
Gold 22 carat	Rs. 4375	Gold 22 carat	    NA
Silver bar (Kg)	Rs. 7375	Silver (Kg)	Rs. 7445
Silver portion	Rs. 7475	Silver portion	    NA

Stock Indices

Sensex		3271.64		+8.97
BSE-100		1567.27		+6.34
S&P CNX Nifty	1062.00		+1.25
Calcutta	 108.81		+0.32
Skindia GDR	 517.03		-5.46
   
 

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